Taiwan Index Plus Launches Value Investing, Taiwan IPO, and Small/Mid-Cap Corporate Governance Indices

2018-05-23 13:30:00

Taiwan Index Plus Corporation(TIP), a fully subsidiary of the Taiwan Stock Exchange, is going to launch TIP Value Investing Index, Taiwan IPO Index, and Taiwan Market Small/Mid-Cap Corporate Governance Index on May 28th, 2018. With focus on different topics, these indices can serve as the basis for the creation of low cost products such as ETFs and index funds tracking the indices for investors, which can also diverse the capital market in Taiwan.

Value investing targets on buying and holding undervalued stocks in order to receive extraordinary capital gains in the long run. According to the academic research, mean reversion suggests that prices and returns would eventually move back toward the mean or average, and P/E ratio of a company can be subject to this phenomenon. Therefore, by using mean reversion method, TIP Value Investing Index selects constituents with strong profitability and relatively low P/E ratios. From the 5-year back-testing result, Value Investing index has an astounding 91.73% return, compare to TAIEX’s 65.02%. What’s more, the 2017 dividend yield has reached 6.39%, which is much higher than 4.51% of TAIEX. These results can also prove that value stocks can outperform the market with excess returns. Such investment strategy is also promoted by high-profile investors like Warren Buffet and Benjamin Graham.

In order to stimulate more Taiwanese companies with strong operating performances to go capital raising via IPOs, TIP has compiled the Taiwan IPO Index to track the activity and performance of the Taiwan IPO market, setting up a benchmark for market participants to review the most liquid newly-public companies in Taiwan. Sizeable IPOs are included once they meet the liquidity/market-cap requirements and the rest are added during scheduled quarterly reviews. Constituents are removed from the index 2 years after their first inclusion. According to the past 5-year back-testing result, IPO index is mainly comprised by mid/small-cap companies and has relatively volatile performance compare to the market.

Corporate governance has been the hot topic in investment industry. It is a guidance for companies to manage themselves and their relationships with shareholders and stakeholders. As the current TWSE Corporate Governance 100 Index is comprised by stocks from Taiwan Stock Exchange only, TIP launches the new Taiwan Market Small/Mid-Cap Corporate Governance Index to select companies with top 20% Corporate Governance Evaluation System scores from the whole Taiwan market. The methodology also includes liquidity and financial requirements in order to maintain certain inevitability of the index. From the 3-year back-testing result, Taiwan Market Small/Mid-Cap Corporate Governance Index has a 41.27% return, outperform TAIEX’s 28.25% and TPEX’s 22.43% and even has an average over 5% dividend yields from the past 3 years.


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