Recently, U.S. President Trump announced a reciprocal tariff policy that has shocked global markets. While tariffs may result in short-term market volatility, Taiwan plays a crucial role in the global electronic supply chain and holds a significant position in the AI industry, with its advanced semiconductor manufacturing technology being widely recognized. In the long term, Taiwan's economic resilience and company fundamentals are expected to prevail.

Investor Warren Buffett introduced the concept of an economic moat in his 1993 shareholder letter, referring to a company's competitive advantages that are hard for rivals to surpass, including intangible assets, switching costs, and cost advantages. Companies with wide moats often become market leaders. The moat concept is widely used in stock selection; in the ETF market, upcoming 2024 launch of Fuhua Japan Leaders (00949) combines the moat concept to identify leading firms in Japan, and Huanan Yongchang's Taiwan Selected 50 ETF (009808) also incorporates this concept, tracking the “Taiwan Index Company Selected Taiwan Moat Concept Selected 50 Index.” This index is based on common stocks listed on the Taiwan Stock Exchange, filtering through liquidity, industry, market capitalization, and more to select 50 stocks as constituents.

This index is unique as it combines indicators of both industry moats and company moats. The industry moat indicator selects industries with a median gross margin in the top 80% over the past 20 quarters, while the company moat indicator evaluates operating scale, market capitalization metrics, and the difference between return on invested capital (ROIC) and weighted average cost of capital (WACC). In short, it aims to identify upward-trending industries and focus on companies with competitive advantages.

According to market statistics from May 17, 2006, to December 31, 2024, the annualized return of the Taiwan Moat Concept Selected 50 Index achieves 11.86%, outperforming the Taiwan 50 Index’s 11.12% and the Taiwan Weighted Index’s 10.48%. Furthermore, this index undergoes an annual review of its constituents, occurring on the last trading day of April, with adjustments taking effect on the 13th trading day of May. Unlike other ETFs that often undergo quarterly or semiannual reviews, this annual adjustment approach helps lower turnover rates and transaction costs.

Market capitalization ETFs may offer stronger growth opportunities compared to high dividend-yield ETFs, making them appealing to growth-oriented investors. Huanan Yongchang's Taiwan Selected 50 ETF (009808) is a new market cap ETF that combines both company and industry moat indicators. To avoid excessive concentration of holdings, there is a 30% limit on individual stock weights and a 60% limit on the total of the top five weights. The fund is set to be launched between April 28 and April 30 at a price of 15 TWD.