George Hsieh, manager of the world's top technology fund, skipped a November briefing by MediaTek Inc., Taiwan's 10th-largest company, to attend one by semiconductor designer Global Unichip before its share sale.
Global Unichip, now among Hsieh's top five holdings, has more than quadrupled since trading began Nov. 3. Hsinchu-based MediaTek, 14 times larger by market value, is up 8.2 percent. More than 92 percent of Hsieh's Hi-Tech Fund is in companies whose weighting in the Taiex Index is less than 1 percent.
``Smaller companies are more profitable on a per-share basis, which is key to returns for investors,'' Hsieh, 33, said in an interview in his office at Capital Securities Investment Trust Co. in Taipei. ``Well-known companies are more likely to have been thoroughly researched, leaving fewer untold stories to explore and reap big profits from.''
Concentrating on smaller companies helped NT$6.6 billion ($200 million) Hi-Tech return 48 percent in the past year, more than the 23 percent for the Taiex index, the fund's and island's benchmark.
The fund, which invests only in the island's stocks, ranks first among 113 with at least $100 million under management that focus on the technology industry and are tracked by Bloomberg.
Morgan Stanley Capital International's World Information Technology Index has returned 8.9 percent in the past 12 months. The year Hsieh began managing Hi-Tech, in 2005, it returned 58 percent, giving investors a return six times greater than the Taiex and almost 10 times more than the MSCI technology index.
Top Holdings
Hsieh has concentrated on Taiwanese suppliers of electronic parts and chip designers set to benefit as Sony Corp. and Nintendo Co. buy components for video-game players introduced in the past three months.
PixArt Imaging Inc. and Genesys Logic Inc. were among Hsieh's top holdings in 2006, according to company filings. Neither company is included in the Taiex.
Hsinchu Hsien-based PixArt, which makes chips that allow movements of Nintendo's Wii wireless video-game console controller to be replicated on screen, has a market value of NT$42.6 billion. It's included in the over-the-counter GreTai Securities Market Index of the island's smaller companies.
Genesys, the sole supplier of chips used in regulating so- called USB connectors and card readers in Sony's PlayStation 3, has a market cap of NT$6.9 billion.
Shares of PixArt have almost tripled since they started trading in May, while Hsintien-based Genesys has more than doubled in the past year. The Hi-Tech Fund sold some of its stake in both companies, according to company filings in December.
Big-Company Declines
Hsieh eschewed Hsinchu-based Taiwan Semiconductor Manufacturing Co., the most valuable company on the island, whose shares lagged behind the 19 percent gain in the Taiex in 2006 with a gain of 11 percent. Taiwan Semiconductor represents more than 9 percent of the Taiex.
Acer Inc., the island's biggest computer maker, located in Taipei, slipped 16 percent last year. Hsieh doesn't own either of the stocks.
Taiwan Semiconductor, which researcher IC Insights says controls more than half of the world's market for making customized chips, had an 18 percent drop in fourth-quarter profit because of an excess in inventory. Acer's third-quarter profit dropped 6.1 percent from a year earlier.
Hsieh sold Compal Communication Inc. shares, which made up 5.5 percent of the fund at the end of September, last quarter on concerns cost-cutting at mobile-phone maker Motorola Inc. might hurt profitability at suppliers. Compal, the island's biggest maker of cell phones. manufactures handsets for Motorola. The shares fell 28 percent in the fourth quarter.
`Double-Edged Sword'
Hsieh's strategy has risks, said Belinda Yu, president of Jih Sun Securities Investment Trust Co. in Taipei. Smaller companies are less able to provide consistent profit growth and the stocks are more vulnerable in a broad market decline, she said.
``Smaller stocks are jumpy, which is a double-edged sword that works really well during a bull trend,'' said Yu. Jih Sun Securities Investment Trust manages 15 funds with $1.3 billion in assets, including shares of Taiwan Semiconductor and Hon Hai Precision Industry Co., the world's biggest contract electronics manufacturer. ``Things can turn against investors in a bear market or when industry trends change.''
Macquarie Securities Ltd. and UBS AG raised ratings on the island's equities in December, and Credit Suisse Group named Taiwan its top pick for 2007.
`Cool Gadget'
The electronics industry accounts for more than half the weighting of the island's stock market, more than anywhere else in Asia and more than in the Nasdaq Composite Index.
``There is hardly ever an electronic gadget that isn't made or at least supplied by Taiwan,'' said Hsieh, who calls Nintendo's Wii, which allows players to swing the wireless controller like a golf club or tennis racket, a ``cool gadget.'' ``I have home-field advantage.''
The over-the-counter GreTai Securities Market Electronics Index of the island's smaller electronics makers climbed 21 percent in 2006, outperforming a 14 percent advance in a Taiex index that tracks the performance of the island's biggest technology companies like Taiwan Semiconductor.
Hsieh in the fourth quarter began buying smaller companies that are part-owned by some of the island's biggest.
Bigger Cousins
He bought shares of Pan-International Industrial Co., a maker of connectors used in computers and mobile phones, and Cybertan Technology Inc., a manufacturer of wireless network equipment, according to company filings in December. Hon Hai, which makes music players for Apple Computer Inc. and games consoles to Sony and Nintendo, has stakes in the two companies.
Pan-International and Cybertan, which have a combined weighting of less than 0.3 percent in the Taiex, each gained more than 50 percent last year. The Hi-Tech fund doesn't hold Hon Hai shares.
Hsieh spends half his time touring the island's science parks and meeting executives, chip designers, and industry analysts. He says personal contact is essential when looking for smaller companies.
``The fund management community is very competitive, so I have to stay close to the industry and act quickly before others stumble upon the treasures,'' said Hsieh, who has a master's degree in international trade from National Chengchi University in Taipei, and was previously an analyst at Capital Securities.
Hsieh said he decided to invest in Hsinchu-City-based Global Unichip after he learned at the briefing that the company is 46 percent-owned by Taiwan Semiconductor and has access to the bigger chipmaker's production facilities. Among Global Unichip's individual investors is Rosemary Ho, head of Hewlett- Packard in Taiwan, according to the company's prospectus.
``The trick is to find the stock and get in early.'' Hsieh said.
source:www.bloomberg.com
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