After conducting tests on the U.S. market using both large-cap and small-cap proxies, I found that the passive ownership factor holds true. Specifically, companies with higher passive ownership—such as ETFs and mutual fund holders—tend to exhibit stronger stock performance. This effect is both persistent and more pronounced within the small-cap universe. Building on these findings, I extended my research to other regions and countries to further validate this factor. This blog focuses on applying the analysis to Taiwan’s market using the TAIEX index.

First, data coverage improves starting from 2008, so I focused my analysis on the past 16 years. As shown in the chart below, the proportion of missing values during this period is approximately 10%.

After filtering out erroneous and invalid data points, the passive factor coverage in Taiwan’s market is significantly lower than in the U.S. market—around 50% compared to approximately 90%.

Coverage Summary

Metric	Value
Average Coverage	52.38%
Min Coverage	27.79%
Max Coverage	63.39%

Similarly, the average passive ownership in Taiwan’s market is also significantly lower than in the U.S. market—approximately 3% compared to 9%.

Finally, applying a passive factor-tilted strategy and a sector-neutralized factor-tilted strategy revealed the same pattern: stocks with a higher percentage of passive ownership outperformed both market-cap-weighted and equal-weighted portfolios.

Performance Statistics

Metric	Market	Tilted	Equal	Sector Neutral
Count	4,396	4,396	4,396	4,396
Mean	1.81	1.83	1.77	1.84
Std Dev	0.99	1.03	0.92	1.04
Min	0.52	0.51	0.45	0.50
25th Percentile	1.07	1.06	1.12	1.07
Median	1.40	1.41	1.38	1.42
75th Percentile	2.32	2.37	2.16	2.38
Max	5.05	5.23	4.57	5.26
Final Return	377.0%	395.2%	320.1%	398.7%

Key Findings

• Best Performer: Sector Neutral Strategy (398.7% return)
• Runner-up: Tilted Strategy (395.2% return)
• Market Strategy: 377.0% return
• Equal Weight: 320.1% return