Index-tracking investment strategies pay off

Investment strategies that track stock market indexes tend to pay off in the long term, and serve as a smart way for investors to park their money in the equity market, according to an official of the Financial Supervisory Commission (FSC).

In a recent seminar on investment in market indexes organized by Taiwan Index Plus Corp. (??????), FSC Vice Chairman Huang Tien-mu (???) cited a popular investment book -- A Random Walk Down Wall Street -- as saying that the performance of market indexes sometimes scores a win over mutual funds, which are managed by professional fund managers.

Huang likened the strategy of tracking a stock market index to a monkey throwing a dart randomly, claiming that the monkey's random choices in its portfolio could yield a better performance than a professional fund manager.

Huang said that the FSC has been easing restrictions since 2003 on the local capital market by allowing more leeway for the presence of market indexes, in a bid to help investors follow and make profits.

The efforts made by the FSC also include better use of big data to pave the way for the presence of more market indexes, and the establishment of the Taiwan Index Plus by the Taiwan Stock Exchange (TWSE) to compile market indexes so that investors can gain access to a wider range of investment products, Huang said.

In addition, the TWSE, which operates the local main board, has encouraged securities firms to provide more financial index products, such as exchange-traded funds, and boost liquidity for new products to boost interest by investors, Huang said.

In the seminar, Lee Chi-hsien (???), chairman of Taiwan Index Plus, said that his company is pushing for indexes that will track major government-led industries such as biotech, semiconductor, renewable energy, national defense and smart machinery to allow institutional investors to adapt, a move that could encourage foreign investors to put their money into the local equity market.

Taiwan Index Plus will hold future investment forums/seminars and news conferences to allow investors to get a better sense about market index investments, Lee said.

In addition, he said, Taiwan Index Plus will continue its efforts to raise exchanges with its foreign counterparts, aiming to boost global visibility of market indexes compiled in Taiwan and encourage foreign institutional investors to follow them.

Liao Chung-wen (???), a manager of Fubon Asset Management Co., said that investing in market indexes could be a good way to diversify risk, in particular at a time when the market is full of uncertainty.

Source: Focus Taiwan News Channel