The semiconductor stocks, as represented by the SPDR S&P Semiconductor ETF (XSD) have underperformed the market, down by about 9% YTD compared to the 8% rise for the general market. The underperformance comes on the back of a miserable 2011, when the average stock in the group corrected by about 20%, compared to the flattish performance for the general market. The weak global economies and sagging consumer confidence that have plagued the sector continue to be issues, and the sector may not be out of the doldrums this year, perhaps preparing for a resurgence in 2013. In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the semiconductor manufacturing companies that are being accumulated and those being distributed by the world's largest fund managers.
These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are bearish on the semiconductor manufacturing group, cutting a net $90 million in Q1 from their $93.66 billion prior quarter position in the group (for more general information on these mega funds, please look at the end of the article).
The investing activities of these mega fund managers in the group in the prior quarter can be found here. The following are the semiconductor manufacturing companies that these mega fund managers are most bullish about (see Table):
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 19.90 million shares in Q1 to their 449.98 million share prior quarter position in the company, and taken together mega funds held $6.09 billion or 9.1% of the outstanding shares. The top buyer was Vanguard Group, with $1.7 trillion in assets under management, that purchased 8.05 million shares. Other large mega fund purchasers included Boston-based MFS Investment Management (7.20 million shares), with over $278 billion in assets under management, and JPMorgan Chase & Co. (5.05 million shares), with $1.4 trillion in assets under management.
In its latest Q1 (March), TSM beat analyst revenue and earnings estimates. Its shares trade at a current 15.5 P/E and 3.0 P/B compared to averages of 31.1 and 3.8 for its peers in the semiconductor foundries group, while earnings are projected to rise from 87c in 2011 to $1.12 in 2013, at a respectable annual growth rate of 13.5%. The shares are off about 20% from the multi-year $16.15 high set in late-April, and besides being attractively valued, the stock also sports a dividend yield of 3.2% compared to the 1.4% average for its peers in the group.
Other semiconductor manufacturing companies that mega fund managers are bullish about include:
- 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 net 6.87 million shares to their 101.17 million share prior quarter position in the company;
- International Rectifier Corp. (IRF), that is a manufacturer of power management semiconductors, in which mega funds together added a net 1.76 million shares to their 27.51 million share 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 added a net 10.42 million shares to their 72.15 million share prior quarter position in the company.
The following are semiconductor manufacturing companies that mega funds are bearish about (see Table):
- 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 cut a net 55.67 million shares from their 425.02 million share prior quarter position in the company;
- RF Micro Devices Inc. (RFMD), that manufactures radio frequency systems and solutions that drive mobile communications. Its applications are used in mobile devices, base stations, wireless LANs and advanced metering devices, in which mega funds together cut a net 11.02 million shares from their 118.58 million share 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 cut a net 5.73 million shares from their 10.46 million share prior quarter position in the company.
Furthermore, the following are other notable semiconductor manufacturing companies that are among the top holdings of mega funds in the group, relative to their market-cap (see Table):
- Texas Instruments (TXN), that is a global manufacturer of analog ICs and digital signal processors used in cell phones, navigation systems and PCs, in which mega funds together hold 475.78 million or 41.6% of the outstanding shares; and
- ON Semiconductor Corp. (ONNN), that is a supplier of broadband and power management ICs and standard semiconductors used in fiber-optic networking equipment and portable electronics, in which mega funds together hold 220.99 million or 48.7% of the outstanding shares.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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