Low volatility index expected to make for stable returns: TIP

The newly unveiled TIP Low Volatility Select 30 Index (the TIP LV 30 index) is expected to serve as an ideal investment tool that will help investors generate stable returns, according to index provider Taiwan Index Plus Corp. (TIP, 台灣指數公司).

The TIP, which is a wholly owned subsidiary of the Taiwan Stock Exchange (TWSE), said that in the aging Taiwan society, an investment instrument like the TIP LV 30 index could become one of the best options to serve an increasingly larger retired population, due to its relatively low volatility compared with other indexes.

The TIP LV 30 index, introduced to the public by the index provider last week, started its official launch at the beginning of this week. The new index is comprised of 30 stocks that are believed to be less volatile, helping investors avoid risks down the road.

Among the top 10 stocks in the TIP LV 30 index, the TIP said, Hon Hai Precision Industry Co. (鴻海), the world’s largest contract electronics maker, commanded the highest market capitalization of NT$1.37 trillion as of the end of September, ahead of telecom service provider Chunghwa Telecom Co. (中華電), Cathay Financial Holding Co. (國泰金), Fubon Financial Holding Co. (富邦金) and Formosa Plastics Co. (台塑).

Formosa Chemicals and Fiber Corp. (台化) came in sixth, followed by Nan Ya Plastics Corp. (南亞), China Steel Corp. (中鋼), CTBC Financial Holding Co. (中信金) and Mega Financial Holding Co. (兆豐金).

The 30 stocks in the TIP LV 30 index had an aggregate market cap worth NT$7.75 trillion as of the end of September, with the 30th stock having a market cap of NT$11.35 billion, the TIP said.

Electronics stocks accounted for about 40 percent of the 30 constituents in the TIP LV 30 index, financial stocks made up 37 percent, and old-economy stocks represented the remaining 23 percent, the index provider said.

The TIP said that the 30 stocks are mostly large to mid-cap stocks in Taiwan and represent the industrial development in the local market.

Dating back over the past 10 years, the 30 stocks in the TIP LV 30 index posted a return of 168 percent, higher than 92 percent in return posted by the weighted index on the TWSE, and a 91 percent return recorded by the FTSE TWSE Taiwan 50 Index, which is comprised of the 50 largest-cap stocks in Taiwan, the TIP said.

The TIP added that the 30 stocks had a relatively low valuation of 16.16 in price to earnings ratio, and a relatively low price to book value ratio of 1.51 as a whole, compared with 17.54 and 2.82, respectively, recorded by the Taiwan 50 index, which indicates that the new index could create stable profits but keep risk low.

The newly launched index is a good choice for investors, in particular for senior citizens, who want to chase steady returns but keep investment principles as high as they can in the long term.

Source: Focus Taiwan News Channel

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