Semi Slump Weighs on Taiwan ETF

What is good for an exchange traded fund on the way up can be bad on the way down and that is a lesson the iShares MSCI Taiwan ETF (NYSEArca: EWT) is currently learning.

Less than four months removed from hitting its highest levels since the global financial, EWT, the largest Taiwan ETF trading in the U.S., is down 13.3% over the past 90 days and closed at its lowest levels since the late first quarter of 2014 on Thursday.

What’s plaguing EWT might come as a surprise to investors that are not intimately familiar with the ETF. EWT’s hefty technology sector allocation, which is 54.6% of the fund, has become problematic. Moreover, it is the ETF’s arguably excessive weight to one stock, Taiwan Semiconductor (NYSE: TSM), that is creating EWT’s problems.

Taiwan Semiconductor, EWT’s largest holding at nearly 23% of the fund’s weight, is down less than 2% year-to-date, but the stock’s losses are accelerating as highlighted by a one-week decline of more than 6%. Making matters worse for Taiwan Semiconductor and EWT is ominous technical outlook for a major semiconductor index. [ETF Plays to Capture Growth in Emerging Asia]

“However, this month, moving averages not only broke several weeks ago but the averages themselves are now crossing each other to the downside. In the chart, the 10-week average plunged through the 20- and 30-week exponential averages and the 20- is on track to cross the 30- as early as next week,” wrote Michael Kahn for Barron’s in reference to the PHLX Semiconductor Index.