By Danish Lim, Investment Analyst for Phillip Nova
Semiconductor and Big Tech companies like Nvidia (+75.77% YTD) and Meta (+47.02% YTD) have seen a tremendous bull rally due to their exposure to Artificial Intelligence. However, Taiwan Semiconductor Manufacturing (+41.16% YTD) isn’t far behind them as a key beneficiary of the AI exuberance.
As seen above, TSMC is by far the largest foundry in the world with over 50% in market share. Their key customers include Apple, Qualcomm, Advanced Micro Devices, Nvidia, and Sony.
Because of this, TSMC has an outsized weightage of 44% in the uncapped FTSE Taiwan Index. This makes the normal index highly sensitive and dependent on TSMC.
In contrast, TSMC only accounts for 19.22% of the FTSE Taiwan RIC Capped Index. This feature helps reduce concentration risk and makes the FTSE Taiwan RIC Capped Index more diversified and less volatile compared to the uncapped index.
The FTSE Taiwan Index futures contract is based on the underlying FTSE Taiwan RIC Capped Index. Its capped weightage methodology allows investors to maintain exposure to the AI story while limiting over concentration risks in TSMC.
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