Taoyuan Nights

ETFs – Exchange Traded Funds – are something that I’ve suggested to all my friends, as a wonderful way to invest money in the stockmarket without having to learn much about shares, and without being screwed over by typical mutual fund charges.

An ETF is just a form of index tracking fund, that can be bought and sold as though it was a company. Index tracking involves copying the performance of a group of shares, usually a well known group. For example, an index might contain the largest 500 companies in a particular country (the SP500, DAX or FTSE100, for example).

If you think of ETFs as a pretend company listed on the stockmarket, that performs like the average company in the market, you wouldn’t be a mile from the truth. For example, “ISF” is the name of one ETF, whose share price mirrors the level of the FTSE100. It also pays out the same dividend as the companies in the FTSE100, on average (less a fairly small annual charge).

Internationally, ETFs have been available to the public for a few years, and you can purchase ETF shares corresponding to almost any major stockmarket index: America, Europe (or individual countries in Europe), Asia (or individual countries in Asia), …

Unlike a mutual fund, ETFs don’t have an upfront charge to buy in units of the fund; nor an exit charge; and typically, ongoing annual charges are tiny – 0.4% per year being easily achievable on most major indices.

So why do I bring this up today? Well, for about a year I’ve been trying to find a way to invest in ETFs from Taiwan, so that my Taiwanese friends can enjoy the almost magical returns of passive, long-term-buy-and-hold index investing.

To date, I’ve only found ‘fake’ ETFs available through some Taiwanese banks – where “ETF” has been included as part of the name of a traditional mutual fund, to try to make it sound trendy, new and fashionable. These ‘ETFs’ aren’t worth spitting on; they’re not tradable like real ETFs; there’s often no real attempt to actually replicate a well-known index; they have high annual charges; and remarkably, they typically have costly entry and exit charges.

However, the Financial times reported today that the Taiwan Stock Exchange is to list more than a dozen real ETFs mirroring the indices of countries all across the world.

This is great news if you’re living in Taiwan, and especially if you’re limited to investing in Taiwan. These ETFs will offer an ‘easy to get in, easy to get out’ way of investing in index trackers, and at low cost – no upfront costs besides a small share dealing charge, and a tiny annual management fee.

For anyone who just wants to invest in international stockmarkets, but doesn’t want to learn about shares or funds or fund managers, this is a great choice. Also, there’s bucketloads of evidence that passive index trackers outperform traditional actively managed mutual funds, after charges are taken into consideration, so this is really a superbly effective way to invest spare money.

Anyway, please don’t take my word for any of this – this is a blog post, after all, not financial advice. Still, I’d recommend to anyone with some spare dosh, currently living in Taiwan, that it would be well worth your time to learn a little bit about ETFs.