Investment Radar: The Secret Behind Domestic Funds' Strength and Taiwan's Home Advantage in the AI Era

In the first half of 2026, domestic funds in Taiwan significantly outperformed offshore funds in average returns. Even when narrowing the scope to the information technology equity category—available in both domestic and offshore funds—the performance gap widened further. This trend reflects not only the strength of Taiwan stock funds but also the long-term, market-close research capabilities of domestic asset management firms, as well as the shift in tech investment focus from software and platforms to hardware supply chains driven by AI capital expenditures.

1. Difference Between Domestic and Offshore Funds

Many investors associate domestic and offshore funds with their investment regions. In reality, the primary distinction lies in the fund’s registration location and the investment decision-making management body. Domestic funds are issued by Taiwanese asset management companies, registered in Taiwan, and managed primarily by local fund managers, research teams, and traders. Offshore funds, on the other hand, are managed by overseas fund management institutions and introduced to Taiwan through local distributors. These distributors assist with fundraising, sales, and information dissemination in Taiwan but do not make daily investment decisions.

Therefore, domestic funds are not limited to investing solely in Taiwan stocks; they can also invest globally in equities, bonds, U.S. tech, or other overseas markets. Similarly, offshore funds may hold Taiwanese, Asian, or emerging market companies. The registration location and management team’s base affect regulatory frameworks and product structures, but the actual fund performance depends on how managers allocate across markets and sectors, select holdings, and manage currency and fees.

Source: Compiled by Herald Investment. Data as of July 15, 2026.

2. Domestic Funds Outperform

While the distinction between domestic and offshore funds only indicates registration and management structure—and should not be used alone to judge fund quality—in the first half of 2026, domestic funds averaged a 32.9% return, far exceeding offshore funds’ 9.0%. This gap can be partly explained by the performance of Taiwan stock funds. In the first half of 2026, Taiwan equity and Taiwan small-mid cap funds under the Lipper Global classification rose 85.2% and 97.8% on average, respectively. These funds, primarily focused on the Taiwan stock market, are only available as domestic funds. Offshore funds, while allowed to hold Taiwanese companies, cannot market themselves in Taiwan as primarily investing in the Taiwan securities market, so equivalent Taiwan-focused funds do not exist. When weighted by fund size, domestic funds achieved a weighted return of 36.3% in the first half, with Taiwan equity and small-mid cap funds contributing approximately 26.8 percentage points—indicating that part of the performance gap stems from the strong performance of Taiwan-focused funds.

However, Taiwan stock funds are not the only factor. When comparing funds within the same Lipper Global category available in both domestic and offshore markets, information technology equities showed the largest performance gap in the first half of 2026. Domestic tech funds averaged a 78.1% return, while offshore counterparts returned 30.2%. However, this gap has not always existed. From 2016 to 2024, offshore tech funds either outperformed or matched domestic funds. Starting in 2024, domestic tech funds began to surpass offshore funds, with the lead expanding in 2025 and the first half of 2026.

Source: Lipper, compiled by Herald Investment. Fund classification based on Lipper Global, priced in New Taiwan dollars. Data period: January 1, 2016, to June 30, 2026; 2026 data reflects first-half performance. Past performance varies by investor entry timing and does not guarantee future results.

3. AI Development Reshapes the Tech Profit Landscape

The shift in relative performance of information technology funds can be traced to recent changes in tech investment themes. From 2016 to 2024, U.S. software, cloud services, and online platforms were central to tech investment, with markets emphasizing subscription revenue, customer stickiness, and platform monetization. Many offshore tech funds sold in Taiwan are managed by international asset managers with core holdings in large U.S. software, cloud, and platform companies. These teams have long covered the U.S. tech market, accumulating deep research on software business models, product competition, customer adoption, and earnings cycles. When software and platform stocks dominated the market, this research foundation likely contributed to better stock selection, possibly explaining the historically stronger performance of offshore tech funds.

With the rise of generative AI, the order of beneficiaries has shifted. Cloud providers must first expand data centers and purchase chips, servers, networking equipment, cooling, and power infrastructure to deploy AI applications—shifting market focus toward computing power and hardware supply chains. U.S. hardware stocks caught up with software in 2025 and clearly led in 2026, reflecting heightened market expectations for AI infrastructure demand. Taiwanese firms cover key segments including foundry, advanced packaging, servers, cooling, power, PCBs, and high-speed transmission. As market themes align more closely with Taiwan’s tech supply chain, domestic asset managers’ long-standing access to earnings calls, monthly revenue reports, company announcements, and supply chain changes gives them an edge in interpreting order trends, capacity shifts, and product upgrades.

Source: Bloomberg, compiled by Herald Investment. Data period: January 1, 2016, to July 15, 2026. Index levels standardized to 100 on January 1, 2016. Software index: S&P Software & Services Select Industry Index (SPSISS); Hardware index: S&P Technology Hardware Select Industry Index (SPSICH). Both are USD price return indices.

Herald Investment Strategy

The strength of domestic funds is not limited to Taiwan stock funds—categories like information technology have also shown strong performance in recent years. Domestic asset managers’ long-term tracking of Taiwanese companies allows them to leverage their proximity advantage when the market focuses on AI hardware supply chains. Investors optimistic about the long-term development of the AI hardware supply chain should consider domestic funds as a core holding and use Herald Investment’s 'Qiang Sheng Wang' service, where the research team selects funds, builds portfolios, and conducts regular reviews, enabling phased top-ups during market pullbacks based on preset conditions.

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