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What do the top hedge fund and mutual fund gurus like in the semiconductor equipment industry? This article, the seventeenth in a series, identifies through a research of the latest available institutional 13-F filings the gurus that are most invested in the semiconductor equipment industry (including also semiconductor materials and testing services stocks), and the specific semiconductor equipment stocks they prefer to hold in their portfolios. The first 16 articles in the series identified Gurus that are over-weight in the Solar sector, Utilities sector, China stocks, Airline sector, Optical Networking sector, Chemicals industry, Oil and Gas Exploration Industry, the Automobile Industry, the Biotech Industry, the Consumer Non-Durable Goods Sector, the Gold and Silver Mining Industry, and the Regional Banking Industry, the Insurance Industry, the Computer Hardware and Peripherals Industry, the Big Pharmaceuticals and Generic Pharmaceuticals segments, and the Money Center and Foreign Bank Sector, and the stocks within those sectors that they hold in their portfolios (For those familiar with the series, skip over to the fifth paragraph).

A guru is defined as someone who is regarded as having great knowledge, wisdom, and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus including long-term performance, low portfolio volatility and an elite reputation in the investment community.

Many of us are familiar with leading investors and hedge fund managers such as Warren Buffet, George Soros, Carl Icahn and Julian Robertson, but the hedge fund community alone includes over 9,000 funds; add in mutual funds, ETFs, and other investment entities and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than one percent or between 100 to 200 fund managers are commonly believed by the larger investment community to have earned the distinction of being called gurus.

The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth deploying large sums of capital from their funds on a regular basis. They have a long-term track record of success, and while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.

The total capitalization of the U.S. equity markets is somewhere in the $15 trillion range, and the total market capitalization of leading semiconductor equipment companies is $102 billion which is 0.7% of the overall market. The table lists four investment gurus whose funds have invested more than three times that average or at least 2.1% in the semiconductor equipment industry.

As you will see, noticeably absent from the list of top sector holdings of hedge funds and mutual funds concentrated in the semiconductor equipment industry are the world's number one and two leading semiconductor equipment company, Applied Materials Inc. (AMAT) and Dutch manufacturer of lithography systems ASML Holding NV (ASML). At $18-20 billion each, together they account for 38% of the market capitalization of the entire sector, so it would be natural to expect both AMAT and ASML to be a core holding of top hedge funds and mutual funds concentrated in the sector, so their absence is especially noteworthy. The following is a list of their picks in the sector:

  • Deposition companies such as Novellus Systems Inc. (NVLS) that manufactures thin dielectric and metal film deposition and surface preparation, and ultraviolet thermal processing systems; Veeco Instruments Inc. (VECO) that manufactures metal organic chemical vapor and ion beam deposition systems and atomic force and scanning probe microscopes; German manufacturer Aixtron SE (AIXG) of deposition systems based on compound, silicon or organic semiconductor materials.
  • Etch and cleaning systems companies such as Lam Research Corp. (LRCX) that manufactures etch and cleaning systems used in wafer fabrication equipment for the semiconductor industry; Ultra Clean Holdings Inc. (UCTT) that manufactures gas delivery and chemical mechanical planarization systems for the semiconductor capital equipment industry; Cabot Microelectronics (CCMP) that manufactures chemical mechanical planarization slurries for polishing conducting and insulating materials used in ICs.
  • Lithography company Ultratech Inc. (UTEK) that manufactures photolithography and laser thermal processing equipment used in the fabrication of integrated circuits.
  • Ion Implantation companies such as Axcelis Technologies (ACLS) that manufactures ion implantation, dry strip and other processing equipment used in the fabrication of IC s; Varian Semi Equipment (VSEA) manufactures single wafer ion implantation systems and equipment used in the fabrication of semiconductor chips.
  • Packaging and testing companies such as Amkor Technology Inc. (AMKR) that manufactures chip scale, lead-frame and ball grid array packages and provides test services for the semiconductor industry; Kulicke & Soffa Industries Inc. (KLIC) that manufactures wire, die, and ball bonders, wedges, and wafer saw blades for semiconductor packaging and equipment makers; Rudolph Technologies Inc. (RTEC) that manufactures process control defect inspection, metrology and software systems for semiconductor device manufacturers; ATM Inc. (ATMI) that manufactures gas and liquid delivery and materials packaging systems used in the fabrication of semiconductors; Nanometrics Inc. (NANO) that manufactures automated, integrated measurement and inspection systems for semiconductor and flat panel display industries.
  • Other semiconductor equipment, component and materials companies such as Advanced Energy Industries (AEIS) that manufactures DC and RF power supplies, photovoltaic inverters and thermal instruments; Brooks Automations (BRKS) that manufactures robots and robotic modules used in cryogenic vacuum pumping and measurement and thermal management applications; MKS Instruments Inc. (MKSI) that manufactures measurement instruments, control systems, power and reactive gas generators, and vacuum components; KLA Tencor Corp. (KLAC) that manufactures process control and yield management systems for IC, nano-electronics, LED, data storage and solar markets; and Cohu Inc. (COHU) that manufactures IC test handlers, burn-in microwave communications equipment, antennas and closed circuit video cameras.

Table

Fund and Guru

Type of Fund

Assets Under Management

Percent Portfolio in the Semiconductor Equipment and Materials Industry

Major Semiconductor Equipment and Materials Company Positions in Portfolio

Appaloosa Management LP (David Tepper)

Hedge Fund

$ 4.9 billion

3.0%

LRCX, KLAC

Gotham Asset Management, LLC (Joel Greenblatt)

Asset Management - including Hedge Fund

$ 0.5 billion

2.8%

VECO, LRCX

Royce & Associates (Chuck Royce)

Mutual Fund

$ 36.3 billion

2.4%

VSEA, MKSI, CCMP, AIXG, NVLS, LRCX, BRKS, AEIS, ATMI, NANO, RTEC, COHU, KLIC, UCTT

Kingdon Capital Management LLC (Mark Kingdon)

Hedge Fund – GARP

$ 2.9 billion

2.1%

VECO, AMKR, KLAC, KLIC, UTEK, AEIS, ACLS

New Jersey-based Hedge Fund Appaloosa Management, co-founded by David Tepper, manages almost $5 billion. It invests in public equity and fixed income markets globally with a focus on equities and debt of distressed companies, bonds, exchange warrants, options, futures, notes and junk bonds.

Gotham Asset Management founded by guru Joel Greenblatt is mostly a traditional asset management firm that offers a suite of domestic, global and international value investing strategies with a focus on the institutional segment of the market. However, in addition to long-only fee-based products, they also offer long/short funds including a basic fee plus a performance allocation incentive fee.

Royce and Associates, headed by guru Chuck Royce, is a $36.3 billion mutual fund company with a focus on investing in small cap equities, but also including micro-cap and mid-cap companies. They run both diversified and limited portfolios based upon their view of the attendant risks within each portfolio's investment universe and approach. Their investment approach is fundamental and bottom-up aimed at individual stock selection based on strong balance sheets, high internal rates of return and ability to generate free cash flow.

Hedge fund Kingdon Capital Management, with $2.9 billion AUM, all in equities, was founded in 1983 by President Mark Kingdon, and is growth-focused employed a growth at a reasonable price approach to investing.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online, Zacks Investment Research, DailyGraphs, Thomson Reuters and Briefing.com. Fund data including assets under management and firm profiles are sourced mostly from Hedgetracker.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Semiconductor Equipment Picks by Fund Gurus Concentrated in the Sector