Taiwan Stocks Plunge Over Three Weeks as Volatility Intensifies
Taiwan stocks have faced heavy selling pressure recently, with the broader market index pulling back nearly 3,000 points in just 3 weeks, while the OTC index fell about 8.1% in tandem, shrinking paper gains for many investors. After the long holiday, Taiwan stocks once surged 544 points, then quickly reversed course, turning negative intraday and falling 364 points, with a single-day high-low swing of more than 900 points, closing up only 54 points, once again showing the power of volatile trading. When bullish sentiment was strong, investors mostly focused on which stocks or ETFs rose fastest and paid relatively less attention to asset defense. As the market shifts into a correction, how to reduce volatility and preserve previously accumulated gains has become an equally important issue.
0050 Falls Nearly 8%, 00981T Falls Only 0.42%
Investment fan page “Chip Buddy Ge” observed that facing the same correction, ETFs with different asset allocations performed markedly differently. Over the past 3 weeks as the observation period, Yuanta Taiwan 50 (0050) fell about 7.88%, while 00981T, including distributions, fell only about 0.42%, drawing attention for its resilience. However, the two ETFs have different investment strategies and asset allocations, so short-term declines alone cannot determine which is better. In bull markets, focus on returns; in corrections, focus on defense. Investors need to examine both returns and volatility, rather than only looking at short-term performance rankings.
70% Bonds, 30% Taiwan Stocks to Diversify Volatility
The key to 00981T’s relative resilience lies mainly in its different stock-bond allocation. It adopts a strategy of about 70% bonds and 30% Taiwan stocks, with only about 30% of funds invested in Taiwan stocks and the other 70% allocated to bonds, so it does not fully move with the broader Taiwan market. Looking further at its bond portfolio, it is not mainly allocated to U.S. Treasuries, but mainly to U.S.-dollar corporate bonds issued by companies in mature global markets, with investment-grade credit rating requirements, covering financials, telecom, technology, energy, materials and other industries. Its component bonds include corporate bonds issued by companies such as Boeing, MetLife and Dow, earning interest income by holding bonds from different companies while diversifying exposure to a single industry or company. Such an allocation may not follow rallies as quickly as high-equity-weight ETFs when stocks rise, but when Taiwan stocks correct明显, the bond portion may help diversify risk and reduce the overall portfolio’s sensitivity to stock market volatility. However, bonds are not completely risk-free and are still affected by market interest rates, corporate credit conditions, exchange rates and other factors. Investment grade does not mean there will never be defaults or price declines, so short-term resilience should not be taken as a future guarantee.
Distribution Raised to 0.082 Yuan, Annualized Over 8%
In addition to asset allocation, distribution performance is another reason investors are watching 00981T. The per-unit distribution amount has risen from an initial 0.054 yuan to 0.057 yuan, 0.065 yuan and 0.071 yuan, and recently stayed at 0.082 yuan. Based on the latest per-unit distribution of 0.082 yuan, the single-period annualized distribution yield already exceeds 8%. However, a single-period annualized distribution yield is not equal to actual full-year return, nor does it mean future distributions will stay at the same level. Distributions may change with income sources, portfolio holdings and market conditions, and investors still need to look at net asset value, total return including distributions, and related expenses together. Facing high-level volatility, being bullish on Taiwan stocks for the long term does not mean all funds must be invested in stocks at once. Allocations can be divided according to risk tolerance and funding purpose, with part allocated to growth stocks or market-cap ETFs for long-term appreciation, and another part kept in cash or moderately allocated to bond products. Whether to include them in a portfolio still requires considering holding period, funding needs, tolerable volatility, fees and risks.