The semiconductor industry is the life-blood of our digital economy, enabling our computing devices, automobiles, and all sorts of electronic gadgets, as well as our industrial and defense infrastructure. In this article, we cover the investing activities of the world's largest money managers or mega funds in semiconductor manufacturing stocks, based on our research of the latest available institutional 13-F filings (our prior article on their investing activities in the fabless semiconductor group can be accessed by clicking on the above hyperlink). The group includes semiconductor manufacturing companies, as well as pure-play semiconductor foundries that manufacture integrated circuits and transistors on behalf of other companies.
Taken together these mega fund managers, managing between $50 billion and over $700 billion in 13-F assets, control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Also, taken together, they are bearish on the semiconductor group, including fabless and semiconductor manufacturing companies, cumulatively cutting $2.91 billion in Q4 from their $145.85 billion prior quarter position (for more general information on these mega funds, please look at the end of the article).
The following are the semiconductor manufacturing stocks that these mega fund managers are most bullish about, that are undervalued compared to the peers in their group, and have also outperformed YTD on a relative basis compared to the peers in their group as measured by the SPDR S&P Semiconductor ETF ($XSD) that is up about 10% YTD (see Table):
Skyworks Solutions Inc. (SWKS): SWKS is the industry's leading wireless semiconductor company focused on radio frequency (RF) and semiconductor solutions for mobile communications applications. Mega funds together added a net $80 million in Q4 to their $2.13 billion prior quarter position in the company, and taken together mega funds hold 43.2% of the outstanding shares. The top buyer was Swiss global financial services company UBS AG, with over $2.4 trillion in invested assets ($133 million), and the top holder was Wellington Management, with $254 billion in 13-F assets ($709 million).
SWKS shares have been among the best performers this year in the semiconductor group, up over 65% YTD compared to the 10% rise for the average semiconductor stock. The company is one of the chip suppliers to Apple Inc. (AAPL), and is being bolstered no doubt by the strong performance at AAPL that has also lifted earnings from the 70c range in 2008-09 to $1.89 in 2011 (FY ending September). Its shares currently trade at 12-13 forward P/E and 3.1 P/B compared to averages of 14.8 and 2.4 for its peers in the wireless semiconductors group, while earnings are projected to continue rising, albeit at a more modest pace, to $2.11 in 2013.
Taiwan Semiconductor ADR or TSMC (TSM): Taiwan Semiconductor is the world's largest dedicated IC foundry manufacturing logic and mixed-signal ICs for fabless semiconductor companies and integrated device manufacturers. Mega funds together added a net $66 million in Q4 to their $6.78 billion prior quarter position in the company, and taken together mega funds hold 8.5% of the outstanding shares. The top buyers were mutual fund powerhouse Fidelity Investments, with $492 billion in 13-F assets ($161 million), and New York-based Bank of New York Mellon Corp., with over $1.2 trillion in assets under management ($128 million), and the top holders were Los Angeles-based Capital World Investors, with over $262 billion in 13-F assets ($1.06 billion), JPMorgan Chase & Co., with $1.3 trillion in assets under management ($925 million), and Vanguard Group, with $1.6 trillion in assets under management ($892 million).
TSM reported a strong Q1 (March) quarter last Thursday, beating analyst revenue and earnings estimates. The stock is up over 10% since the report, and it is up about 20% YTD compared to the 10% rise for the average semiconductor stock. Its shares trade at a current 18.3 current P/E on a TTM (trailing-twelve-month) basis and 3.9 P/B compared to averages of 35.7 and 4.4 for its peers in the semiconductor foundries group, while earnings are projected to continue rising at a strong pace, at 14.0% annual growth rate, from 87c in 2011 to $1.13 in 2013. Besides its attractive valuation, on a relative basis, TSM also sports a dividend yield of 2.6% compared to the 1.4% average for its peers in the group.
The following are some additional semiconductor manufacturing and foundry company stocks that mega funds accumulated in Q4 (see Table):
- Atmel Corp. (ATML), a manufacturer of a wide range of highly integrated semiconductor integrated circuit products, including microcontrollers, application specific ICs, non-volatile memory, and RF components, in which mega funds together added a net $232 million in Q4 to their $1.59 billion prior quarter position in the company;
- SanDisk Corp. (SNDK), a manufacturer of non-volatile removable memory cards used in various computing and electronic devices, in which mega funds together added a Mnet $161 million in Q4 to their $3.65 billion prior quarter position in the company;
- Micron Technology (MU), a leading manufacturer of semiconductor memory solution, including DRAM, NAND and NOR flash memory, phase change memory, and image sensors, in which mega funds together added a net $23 million in Q4 to their $2.78 billion prior quarter position in the company; and
- STMicroelectronics (STM), that is a Swiss manufacturer of a broad range of ICs and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems, in which mega funds together added a net $1 million in Q4 to their $61 million prior quarter position in the company.
Besides these, mega funds based on their Q4 trading activity indicated that they are bearish on the following stocks in the semiconductor manufacturing and foundries group (see Table):
- Intel Corp. (INTC), that is one of the world's largest manufacturers of semiconductor chips, including microprocessors, chipsets, network processors, motherboards, non-volatile memory and storage, in which mega funds together cut a net $2.24 billion in Q4 from their $39.82 billion prior quarter position in the company;
- Texas Instruments (TXN): TXN is a global manufacturer of analog ICs and digital signal processors used in cell phones, navigation systems and PCs, in which mega funds together cut a net $451 million in Q4 from their $17.37 billion prior quarter position in the company;
- Microchip Technology Inc. (MCHP), that manufactures microcontrollers, application-specific standard products, and related mixed-signal and memory products for the consumer, automotive, office automation, communications and industrial markets, in which mega funds together cut a net $70 million in Q4 from their $3.54 billion prior quarter position in the company;
- Triquint Semiconductor (TQNT), that manufactures a broad range of high-performance RF, analog and mixed-signal ICs that are incorporated into a variety of communications products, including cellular phones and pagers, fiber optic telecommunications equipment, satellite communications systems, high performance data networking products and aerospace applications, in which mega funds together cut a net $31 million in Q4 from their $277 million prior quarter position in the company; and
- United Microelectronics ADR (UMC), a Taiwanese foundry for high performance semiconductor applications for telecom, consumer electronics, PC and memory markets, in which mega funds together cut a net $5 million in Q4 from their $183 million prior quarter position in the company.
General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.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 our 'opinions' and we may be wrong. We 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 our 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.