Taiwan Stock Funds and ETFs See Performance Shuffle! Experts Advise Against 'Guessing the Bottom,' Recommend Strategic Allocation for Stable Returns

After experiencing severe market volatility in July, the performance landscape of Taiwan stock investment instruments has undergone a major reshuffle this year. The latest statistics show that Taiwan stock mutual funds and passive ETFs have delivered average returns exceeding the Taiwan Weighted Index. However, actively managed ETFs, which previously performed well, have now fallen behind the broader market. As Taiwan's stock market has recently rebounded sharply, investors are questioning whether this marks a true bottom or merely a technical bounce.

Market analysts emphasize that assessing the market outlook requires more than just tracking index movements. It is crucial to determine whether the recent correction stems from cooling investor sentiment or weakening fundamentals. If corporate earnings and the economic outlook remain stable, market volatility could present a long-term investment opportunity in Taiwan stocks.

According to Lipper Global data, Taiwan small- and mid-cap equity funds achieved an average return of 59.3% in the first half of the year, ranking highest among all Taiwan stock investment vehicles. The top-performing fund in this category more than doubled its value. Taiwan equity funds posted an average return of 51.9%, with the best fund reaching 98.7%. Passive Taiwan stock ETFs delivered an average return of 51.6%, also outperforming the Taiwan Weighted Index, which rose 50.8%.

In contrast, actively managed ETFs recorded an average return of only 45.8%, making them the sole Taiwan stock investment tool to underperform the market. This highlights the advantage of mutual funds' operational flexibility and passive ETFs' diversified holdings during periods of market turbulence, such as the sharp correction in July.

Chang Jung-jen, General Manager of "Macro Securities Fund Platform," stated that the recent rebound in Taiwan stocks does not necessarily mean the market has fully stabilized. Investors should instead analyze the nature of the downturn. If the decline is merely a valuation correction following a strong rally and profit-taking, with corporate earnings and end-user demand remaining solid, the market is likely to gradually stabilize as selling pressure eases. The real concern arises when order intake, corporate profits, and the broader economy all weaken simultaneously, signaling a recessionary bear market. "Currently, the market appears to align more with the former scenario. Therefore, investors should remain patient and avoid altering long-term investment strategies due to short-term fluctuations."

Chang emphasized that the fundamental support for Taiwan stocks continues to stem from U.S. end-user demand, which has not shown clear signs of weakening. Notably, the U.S. ISM Manufacturing New Orders Index rebounded to 56.7 in July, remaining firmly above the 50-point threshold, indicating sustained expansion in corporate orders and end-user demand.

Additionally, Taiwan's June exports surged 40.3% year-on-year. Although slightly lower than the previous month, exports remain at a high growth level, reflecting robust demand for AI servers, high-performance computing, and the electronics supply chain. "As long as U.S. demand remains strong, Taiwan's exports and corporate profits are expected to continue benefiting."

In response to market volatility, Chang recommends establishing a disciplined, phased investment approach rather than attempting to time the market bottom. Historical data since 1967 shows that when the Taiwan stock market declines more than 15% from its peak over the past 60 trading days, if the U.S. economy avoids recession in the following six months, the market has delivered double-digit average annual returns over the subsequent 1–3 years. Even if the economy weakens later, long-term returns have mostly remained positive. This suggests that short-term market fluctuations are often driven by sentiment. As long as fundamentals remain intact, a patient, strategic investment approach typically yields better long-term returns than frequent trading.