Taipei, Sept. 19 (CNA)Taiwan Stock Exchange (TWSE) launched on Sept. 11 a new index focusing on the corporate governance and corporate social responsibility, which demonstrated better performance of back history than the leading tradable index and the existing benchmark index in Taiwan.
TWSE RAFI® Taiwan Corporate Operation 101 Index (abbreviated as “Taiwan CO 101 Index”), compiled by TWSE in cooperation with California-based Research Affiliate, LLC, is the exchange’s second index aimed at encouraging listed companies to fulfill their corporate social responsibility, following the TWSE RA Taiwan Employment Creation 99 Index launched at the end of 2010.
The 101 constituents of the new index are selected by corporate operation indicators, and weighted by fundamental values.
With low-cost, transparent and objective criteria in constituent selection, and weighted by fundamental methodology to enhance performance, the new index can serve as a good investment benchmark for funds management institutions, or the underlying index of index products.
One key feature of the new index is the adoption of the information disclosure evaluation system, which is expected to encourage listed companies to put more emphasis on the disclosure of operation information.
According to the index methodology of the Taiwan CO 101 Index, the stocks without enough liquidity are removed from the universe first. The remaining stocks that can pass the liquidity criteria are further screened by the four “corporate operation indicators” to delete the following ineligible ones:
a. The stocks that do not have at least the A- rating in the annual evaluation of information disclosure for listed companies on TWSE and GreTai Securities Market, conducted by the Securities and Futures Institute;
b. The top 5 percent of the stocks with the highest ratio of board directors and supervisors using their stock holding as collateral;
c. The stocks that report a net loss after tax in the previous year;
d. The bottom 10 percent of the stocks in terms of debt coverage ratio.
For those remaining stocks that can pass the four “corporate operation indicators” at the same time, the respective fundamental value is calculated according to four “fundamental factors” including sales, cash flow, book value and cash dividends. The remaining stocks are then ranked in descending order by fundamental values. Finally, the top 101 stocks with the highest fundamental values are selected as the index constituents.
The top 10 constituents with the largest weighting in the new index are Taiwan Semiconductor Manufacturing Co., Formosa Petrochemical Co., China Steel Corp., Nan Ya Plastics Corp., Formosa Chemicals and Fibre Corp., Quanta Computer lnc., Cathay Financial Holding Co., Formosa Plastics Corp., MediaTek Inc., and Fubon Financial Holding Co.
Of the 101 constituents in the new index, 19.80 percent are in the financial and insurance sector, 36.63 percent in the electronics and technology sector, and 43.57 percent in the traditional sectors.
Constituents of the index are subject to the periodical annual review in August every year.
The back history from July 2004 to December 2011 showed that the annualized return of the Taiwan CO 101 Index outperformed Taiwan 50 Index and TAIEX by 4.56 percent and 3.68 percent respectively every year.
As to the cumulative return, the Taiwan CO 101 Index outperformed Taiwan 50 Index and TAIEX by 56.88 percent and 47.09 percent respectively, during the back history period of 7.5 years.
The base date of the new index is set on Aug. 27, 2012, with a base value of 5,000. Daily closing index value is available on TWSE’s website from Sept. 11. Realtime index values are scheduled to be calculated and disseminated to the market starting Dec. 17, 2012.