Return of market index and the market index ETF is not identical

Market index


  • Although Yuanta Taiwan 50 is claimed to be a Taiwan stock market index ETF, it is actually difficult to represent the Taiwan stock market at all, because Yuanta Taiwan 50 only has 50 constituent stocks, which are not exactly the same as the constituent stocks of the Taiwan Stock Weighted Index.
  • Currently among the Taiwan stock ETFs, Yuanta Taiwan 50 (0050), Fubon Taiwan 50 (006208), Fubon Corporate Governance (00692), Yuanta Taiwan ESG Sustainability (00850), and Cathay Taiwan Leaders are advertised as Taiwan stock large-cap index ETFs. 50 (00922) etc.
  • The investment targets of these ETFs are based on stocks with larger market capitalization in Taiwan stock market. The top five stocks in Taiwan stock market by market capitalization are TSMC, MediaTek, Hon Hai, Chunghua Telecom, and Fubon Financial. In particular, the rise and fall of TSMC’s stock price will be linked to each other. Performance of market capitalization ETFs.
  • As of the end of November 2023, 0050 TSMC accounts for 46.7%, 006208 TSMC accounts for 45.43%, 00692 TSMC accounts for 38.1%, 00850 TSMC accounts for 29.45%, and 00922 TSMC accounts for 28.56%.

Market index and market index ETF are different

Please remember that what this article is discussing is “the market index and market index ETF are not necessarily completely equal”! Why?

  • There are bound to be fees associated with an ETF: So in theory, a large-cap index ETF should pay at least a little less than the broad-market index it tracks.
  • Depending on the publisher, there will be differences in handling fees, management fees, commissions and other related expenses.
  • The issuer may modify the constituent stocks based on the tracked market index, causing the issuer’s ETF and the tracked market index to have different constituent stocks. Yuanta Taiwan 50, the most famous Taiwanese stock market, is the most famous example; because although Yuanta Taiwan 50 is the most famous Taiwan stock market index ETF, it is actually difficult to represent the Taiwan stock market at all, because Yuanta Taiwan 50 only has The 50 constituent stocks are not exactly the same as the constituent stocks of the Taiwan stock weighted index.
  • The efficiency of the issuer affects the return: Although the large-cap index ETF advertises that it tracks the large-cap index simultaneously, it will still lag behind the actual performance of the large-cap index it tracks.

Avoid ETFs concentrate on few stocks

TSMC (ticker: TSM) accounts for about 25% of the weight of the Taiwan stock index. However, during the bull market in 2021, TSMC once took about 40% of the weight of Yuanta Taiwan 50, causing Yuanta Taiwan 50 (aka 0050) to TSMC seriously. Tilt, this has fundamentally violated the most basic spirit of ETF risk diversification!

Will the above-mentioned incident happen in the US stock market? The answer is impossible. why?

  • Index compilers in the United States (such as Standard & Poor’s) will regularly delete and replace constituent stocks, and the frequency is not low, especially the more famous the index, the higher the update frequency.
  • The most recent example is that since 2023, most of the gains in U.S. stocks have come from the seven major technology stocks, especially when U.S. stocks enter a bear market in 2022. The S&P 500 Index, which represents the US stock market, has fallen by 20% within a year, making the rise of technology stocks particularly obvious compared with other fields.
  • As an example, the Nasdaq stock exchange therefore rebalanced its Nasdaq 100 index in July 2023 to address the index’s excessive concentration. For individual stocks whose weight exceeds 4.5% of the Nasdaq 100 Index, if the combined market value accounts for more than 48% of the index, the weight needs to be redistributed, and the goal is to drop it below 40%; so as not to cause distortion of the index and distortion of representativeness , Excessively leaning towards several individual stocks.
  • The market value of the top seven technology stocks in the US stock market exceeds one trillion US dollars at every turn. As a result, in June 2023, the value of the eight major technology stocks in the US accounted for nearly one-third of the market value of the S&P 500 Index! Apple (ticker: AAPL ) and Microsoft (ticker: MSFT ) accounted for the combined weight of the world’s two most valuable companies in the S&P 500 jumped to a record 14%, with Apple alone accounting for The total weight of 7.6% is more than twice that of the German stock market. But even so, there will be no such absurd things as TSMC taking up 25% of the weight of the Taiwan stock index and about 40% of the weight of Yuanta Taiwan 50 (aka 0050).

The corresponding ETFs in the market

For an introduction to these major indices, see my previous article”Top 10 ETFs and important major US stock market index

The following table is a list of the more famous large-cap ETFs in the U.S. and Taiwan stock markets. Note the difference between the first and second row in the table, which is the focus of this article. And the website of the tool for querying the annualized return of the index and the rate of return for a specific year (click the link to the tool I developed):

Major indexCorresponding ETFsThe tool to look up the annualized return of the index, or get the rate of return for a specific year (click the link)
Dow Jones Industrial AverageDIADow Jones Industrial Average IRR Query
S&P 500 IndexSPY、IVV、VOOS&P 500 Index IRR Query
Nasdaq indexQQQNasdaq Index IRR Query
Philadelphia Semiconductor indexSOXXPhiladelphia Semiconductor Index IRR Query
Taiwan Stock Exchange0050Querier to Annualized rate of return for Taiwan Stock Exchange
Market index

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