Should we invest in it or not?
Nippon Mutual Fund’s new Nippon India Taiwan fund offering (NFO), which will remain open until December 6, 2021, is among many international funds that have recently flooded the market.
According to data from Value Research, of the 62 international funds available in the market, a third of them were launched in 2021 alone. Up to 21 international programs have been launched by various fund companies to date. This is the highest number of launches in the international fund category in the history of mutual funds.
Nippon India Taiwan Fund is a thematic fund focused on Taiwan. The fund will focus on new technological trends, in particular the semiconductor industry. Cathay SITE will be an investment consultant for the fund.
According to the product rating, the fund will follow a multi-capitalization investment strategy. The fund will invest in companies with a dominant market share, a successful business model, a large market and a sustainable high margin through superior technology.
The fund will follow a targeted strategy and will invest only in high conviction stocks and will hold no less than 40 stocks in the portfolio. Additionally, this will limit the maximum exposure to a single script to 10 percent.
What works for this?
Growing demand for semiconductors: Semiconductors are the brain of modern electronics. They are used in medical devices, communications, computing, defense, transportation, and future technologies such as artificial intelligence, quantum computing, and advanced wireless networks. Taiwan is the world’s largest semiconductor subcontractor with 52% market share, followed by China with 17%.
Higher dividend yield: The The dividend yield of listed companies in Taiwan was 2.8% in September 2021. The benchmark of the program is the Taiwan Capitalization Weighted Stock Index (TAIEX). TAIEX’s dividend yield is 2.76 percent compared to Sensex, which has a dividend yield of 0.97 percent. High dividend yields make Taiwanese stocks attractive to global investors in a low interest rate environment.
What is wrong?
As the fund invests in only one country, its future will therefore depend on the performance of a single country. Investing in a single foreign country is like investing in a sector fund that invests in a single sector rather than in diversified equity funds that invest in multiple sectors. There are several micro- and macro-economic and geopolitical factors that affect the economic performance of a country.
What should you do
If you have invested enough in India across all market capitalizations and sectors and want global diversification, you can allocate a portion to an international fund. However, you might be better off with an international fund that takes exposure across geographies and doesn’t focus on just one country. Invest only if you are truly confident in the growth of the Taiwanese market.