Taiwan Equities: Balancing Sector Exposures

Articles From: FTSE Russell
Website: FTSE Russell


Head of Equity Index Product Management, Asia

Just 50 years ago, Taiwan was a labour-intensive manufacturing hub for cheap exports such as textiles and toys.  In the 1980s, it successfully transformed into a vibrant advanced electronics manufacturing hub that continues to play an important role in the global technology shift of the past decade. Crucially, Taiwan has developed into one of the world’s most critical semiconductor manufacturing centres, and the semiconductor industry has become an inseparable component of Taiwan’s economic growth.

Taiwan's integrated circuits exports as % of total exports

Taiwan Semiconductor Manufacturing Company (“TSMC”) has emerged as a leading global semiconductor foundry and one of the few manufacturers that possess the capabilities necessary to manufacture the world’s most advanced chips. Since it was founded in 1987, the Taiwan-based company has experienced exponential growth in market capitalization and today it is the largest stock listed in Taiwan.  As of December 31, 2022, TSMC represented 38.76% of the uncapped FTSE Taiwan Index which reflects the performance of Taiwan’s large and mid-cap equity universe. 

TSMC Market Cap
TSMC % in FTSE Taiwan Index

The single stock concentration of TSMC in the broad-based Taiwan index has led many investors to seek risk management solutions.  FTSE Russell’s FTSE Taiwan RIC Capped Index applies a 20% cap to constituent weight quarterly, adding a crucial diversification benefit to the index composition while maintaining broad access to the Taiwan market.  Additionally, the sum of the weights of all constituents representing more than 4.5% of the index will not exceed 48% of the total index weight.  As a result, the FTSE Taiwan RIC Capped Index demonstrates a strong defensive nature with its significantly better industry diversification and lower volatility vs. the uncapped FTSE Taiwan Index.  For further details on the FTSE Taiwan RIC Capped Index, please refer here.

Industry Breakdown

The well-established technology manufacturers in Taiwan provide other interesting investment characteristics.  Taiwan is home to many established tech manufacturing firms that benefit from relatively stable cash flows and at the end of 2022, the technology industry in Taiwan offered a weighted average dividend yield of 4.16%, based on the FTSE Taiwan Index.  These dividend-paying firms contribute to the large weight of Technology Industry allocation in the FTSE TWSE Taiwan Dividend+ Index, which tracks the performance of the top 50 dividend-yielding stocks in the FTSE TWSE Taiwan 50 Index universe and the FTSE TWSE Taiwan Mid-Cap 100 Index universe.  As of the end of 2022, 33 of 50 constituents in the FTSE TWSE Taiwan Dividend+ Index (or 67.26% weight) hailed from the Technology industry, of which nine technology companies are among the top ten constituents, including semiconductor companies: Novatek Microelectronics and MediaTek.  For further details on the FTSE TWSE Taiwan Dividend+ Index, please refer here.

Industry breakdown
Dividend Yield Comparison

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Originally Posted March 17, 2023 – Taiwan equities: balancing sector exposures

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