Taiwan Stocks on a Rollercoaster: Which ETF Should Small Investors Buy for Hedging? Experts Name an Underrated ETF with Returns Outperforming 0050

Taiwan's stock market has recently undergone its most volatile period in history, swinging from massive sell-offs to thousand-point rebounds, making the overall index feel like a rollercoaster. This wild ride has left many retail investors on edge. The actively managed ETFs that were once hailed as saviors in the first half of the year have quietly fallen from grace over the past two months, as corrections hit memory and AI-related sectors.

In response, investment expert Chen Chung-ming, known as the "Invincible Master," posted on Facebook comparing the two largest active ETFs by scale: 00981A and 00403A. From the listing date of 00403A on May 12 to the recent date of July 24, 00403A posted a return of -10.83%, while 00981A returned -6.23%. In contrast, during the same period, 009816 achieved a return of 4.69%, outperforming both leading active ETFs.

Chen noted that Taiwan's stock market has been on a rollercoaster—soaring one day and crashing the next—and stated that it's becoming increasingly difficult for investors. On July 17, the market witnessed a historic plunge of 2,953 points. On July 21, it rebounded with a record gain of 1,783 points. But by July 24, it had dropped again by 1,195 points. With such extreme volatility, is there any room left for investors to survive?

Have the two dominant active ETFs fallen from grace? 009816 outperforms 00403A and 00981A

Chen pointed out that the market's leading players have quietly changed. The actively managed ETFs that were once deified in the first half of the year have gradually lost their luster as memory and AI stocks corrected over the past two months. Looking at 00981A and 00403A—the two largest by scale—from May 12 (00403A’s listing date) to July 24, 00403A returned -10.83%, and 00981A returned -6.23%. In contrast, 009816 posted a return of 4.69% over the same period, outpacing both active ETF leaders.

Chen explained that 009816 has been the most eye-catching market-cap-weighted ETF this year. Since its February launch, it surpassed 900,000 investors by June, ranking first among passive ETFs in terms of regular investment subscribers. Its cumulative return has also outperformed 0050. Why are so many investors supporting 009816, despite it not paying dividends?

The reason is that investors are beginning to understand that without filling the dividend gap, dividends are merely a transfer from one hand to the other. Moreover, dividends are subject to income tax and supplementary insurance premiums, which reduce long-term returns. While 009816 does not distribute dividends, the dividends aren’t lost—they are reinvested by the fund manager to continuously buy back component stocks, allowing 009816’s assets to grow. Because it doesn’t pay dividends, investors won’t spend them, nor will they have to worry about what stocks to buy next. It truly embodies the ETF principle of being "lazy and brainless."

Why has 009816 outperformed 0050? Chen highlights five key features

Why has 009816 outperformed 0050 and active ETFs since its launch? Chen outlines five key features:

First, passive stock selection: It focuses on Taiwan’s large-cap blue-chip stocks and passively tracks the index, avoiding the influence of fund manager discretion.

Second, TSMC weighting: TSMC is Taiwan’s “national guardian mountain,” and its profits have surged this year, providing stability like a “ballast stone” during market crashes. However, active ETFs, aiming for excess returns and constrained by the Financial Supervisory Commission’s 25% cap on single-company investments, tend to overweight volatile mid- and small-cap stocks while holding lower weights in TSMC. 00403A has a TSMC weighting of 16.82%, and 00981A only 10.41%, while 009816 matches the market at 41.64%. Now you understand why 009816 outperforms 00981A and 00403A.

Third, portfolio diversification: 0050 has a TSMC weighting of as high as 59%, while the other 49 stocks combined make up only 41%, creating severe imbalance. 009816 offers significantly better diversification, giving other component stocks more room to perform. This is the main reason it consistently outperforms 0050. Remember, the purpose of holding a basket of stocks in an ETF is diversification.

Fourth, stock selection logic: 0050 selects stocks purely by market cap, regardless of whether they are profitable. 009816, in addition to investing in Taiwan’s large-cap companies, also screens for firms that have been consistently profitable over the past four quarters and excludes those that reported losses in the past year. Remember, the key to investing is profitability.

Fifth, internal expenses: Active ETFs typically charge management fees of 1%, but 009816 charges only 0.07%, lower than even 0050. Low costs are ideal for long-term investing.