Fubon Financial

Empowered by Trend Power, Endurance, Resilience, we are Launching an Exciting Fundraising Initiative on February 24th

Fubon Asset Management has unveiled its 3.0 version of the market capitalization-based ETF, known as the "Fubon Flagship 50 (009802) ETF," after a two-year interval (The source of dividends for this fund may be derived from a dividend smoothing mechanism). The product launch event took place on February 13, where the company alerted investors to the increased likelihood of volatility in the Taiwan stock market this year. To alleviate the difficulties associated with stock selection and timing, we recommend utilizing the momentum strategy promoted by ETF 009802. The fundraising phase for this ETF will occur from February 24 to February 26. Due to high investor demand, Fubon Asset Management will also begin accepting pre-order subscriptions on its official website starting February 14.

Three Significant Events in the International Financial Market are Likely to Increase the Volatility of the Taiwan Stock Market

Lawrence Hsu, an investment strategist at Fubon Asset Management, has indicated that despite the elevated short-term valuations amid the ongoing AI ambitions of TSMC and FANG, there is substantial profit growth support. Consequently, while the market's upward movement may be limited, a significant decline appears unlikely. From a fundamental perspective, this year is expected to be characterized by range-bound fluctuations, which can be analyzed through three specific aspects.

The first event, it is important to note that the implementation of Trump's tariffs 2.0 has resulted in increased market volatility. Nevertheless, in the short-term, the downturns triggered by these tariffs should be viewed as opportunities for investment, as they reflect Trump's strategic approach rather than a definitive objective. Historical data from the significant market fluctuations of 2018 to 2019 can serve as a reference point. The second event, the FOMC meeting in March is expected to be the most consequential event; a hawkish tone could provoke further market instability. Presently, the consensus is to maintain interest rates, while signals regarding a possible rate reduction in June are being conveyed.

The third event is Nvidia's GTC conference. Lawrence Hsu anticipates that there will be continued promotion of AI and robotics applications; however, the primary focus will be on the performance and release timing of new chips. While long-term demand for GPUs is not a concern, fluctuations in orders between short-term quarters are expected to result in stock price volatility exceeding 20% in the near term. For instance, the need to procure updated chips may lead to a decrease in current demand for AI servers.

Momentum Strategies are Effective in Mitigating the Difficulties Related to Both Stock Selection and Timing Decisions in the Market

The aforementioned events are expected to intensify short-term volatility. Lawrence Hsu further recommends employing momentum strategies to mitigate the challenges associated with stock selection and timing. A momentum strategy involves leveraging the tendency of strong stocks to continue rising after a period of appreciation, with a systematic approach to assessment and stock replacement at predetermined intervals each year.

Price continuation is fundamental to momentum strategies. As long as the market is in a bullish phase or undergoing consolidation within a bullish trend, momentum strategies are more likely to achieve better performance than the overall market. Conversely, when entering a bearish downturn, the disruption of price continuation makes it challenging for previously selected stocks to demonstrate strong performance. Lawrence Hsu's analysis indicates that the criteria for selecting momentum strategies are straightforward. The initial step is to assess whether a bear market is anticipated within the next three to six months. If a downturn is not expected, there remains potential for momentum strategies to be effective, with the possibility of outperforming the broader market.

As previously mentioned, there is a significant likelihood that this year's market will enter a bullish consolidation phase. Therefore, rather than reacting impulsively to various news events, it is more prudent to consistently apply a momentum strategy. For instance, ETF 009802 tracks the Taiwan Index Company's flagship Momentum 50 Index, which is based on the premise that large-cap stocks tend to exhibit stronger price continuity. This approach minimizes the need for frequent stock changes; investors should focus on selecting strong performers in February and August, and then execute stock swaps in March and September, ensuring that no more than 24 stocks are exchanged at a time. By reducing turnover, this strategy aims to capitalize on the upward momentum of strong stocks, thereby facilitating the long-term accumulation of excess returns.

Three Key Reasons to Invest in ETF009802

Lawrence Hsu highlights that ETF009802 stands out due to its three key features: trend power, endurance, resilience. This makes it a strong choice for long-term investment. When paired with the Fubon Taiwan 50 (006208) ETF, which serves as both a core and satellite asset, investors can achieve a comprehensive asset allocation in Taiwan's stock market. It is an investment opportunity not to be missed in 2025.

The trend power refers to the process of identifying stocks with strong trends to capitalize on excess returns. Following the high dividend strategy of two years ago and the market capitalization approach of last year, momentum strategies are emerging as the new factor-based stock selection trend for 2025. Following two years of upward market trends, we are now in a phase of bullish consolidation. By adopting a momentum strategy to select high-performing stocks, investors can navigate the complexities of conflicting information and focus on the key aspects.

The endurance refers to the ability of ETF009802 to focus on the top 200 companies by market capitalization in the Taiwan stock market, demonstrating long-term viability and strength. Lawrence Hsu emphasizes that the primary focus of momentum strategies is continuity, with the most significant moment of continuity occurring immediately after a stock swap is completed. By strategically positioning in ETF009802 at the end of February, he effectively capitalized on the opportunity presented by the completion of the stock swap and the commencement of trading in mid-March, which represents the peak probability for arbitrage trading.

The most crucial aspect of resilience is to adhere to the rules of index compilation, regularly eliminating the weak while retaining the strong, thereby maintaining combat effectiveness and enhancing recovery capabilities. A backtesting simulating the historical performance of the flagship Momentum 50 Index and the Weighted Index during periods of market decline, such as the 2008 financial crisis, the 2015 Chinese stock market crash, and the 2022 Russia-Ukraine conflict, reveals that the Momentum 50 Index consistently returned to its previous highs in fewer days than the Weighted Index. This illustrates its resilience. (Note: the indices mentioned above reflect historical performance and are provided for reference purposes only. Past trends do not guarantee future performance and do not assure the future results of this fund.)

Lawrence Hsu suggests that whether one invests in high-dividend stocks or market capitalization, the ultimate goal is capital appreciation and wealth accumulation. Therefore, it is advisable to choose a momentum strategy that facilitates faster accumulation. Similar to prominent indices in the United States, the flagship momentum strategy focuses on retaining strong large-cap stocks while eliminating weaker ones (for instance, divesting from Intel during market downturns and incorporating Tesla during upswings). Given the potential for consolidation in the Taiwan stock market this year, along with sector rotations, it may be challenging for investors to independently navigate industry changes. By selecting the momentum strategy of ETF009802, investors can complement their existing high-yield ETFs, thereby enhancing their portfolios and increasing the likelihood of efficiently capturing leading stocks at each market phase. (Note: the stocks mentioned above are not recommendations and they are provided solely for illustrative purposes. Actual investment decisions should be based on the current index components and investors must assess their own risk tolerance.)