George Hsieh (
Global Unichip, now among Hsieh's top five holdings, has more than quadrupled since trading began on 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 (群益證券) in Taipei.
"Well-known companies are more likely to have been thoroughly researched, leaving fewer untold stories to explore and reap big profits from," he said.
Concentrating on smaller companies helped NT$6.6 billion (US$200 million) Hi-Tech Fund return 48 percent in the past year, more than the 23 percent for the TAIEX index, the fund's and nation's benchmark.
The fund, which invests only in Taiwan's stocks, ranks first among 113 with at least US$100 million under management that focus on the technology industry and are tracked by Bloomberg.
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 Morgan Stanley Capital International's World Information Technology Index.
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 (原相科技) and Genesys Logic Inc (創惟科技) were among Hsieh's top holdings last year, company filings indicated. Neither firm is listed on the TAIEX.
Hsinchu-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 nation'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.
Hsieh eschewed Hsinchu-based Taiwan Semiconductor Manufacturing Co (TSMC,
Acer Inc, the nation's biggest computer maker, located in Taipei, slipped 16 percent last year. Hsieh doesn't own either of the stocks.
TSMC, 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 (華寶通訊) 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, Taiwan's biggest maker of cellphones, manufactures handsets for Motorola. Shares fell 28 percent in the fourth quarter.
Hsieh's strategy has risks, said Belinda Yu (
Smaller companies are less able to provide consistent profit growth and their stocks are more vulnerable, she said.
"Smaller stocks are jumpy, which is a double-edged sword that works really well during a bull trend," Yu said.
Jih Sun Securities Investment Trust manages 15 funds with US$1.3 billion in assets, including shares of TSMC and Hon Hai Precision Industry Co (
The electronics industry accounts for more than half the weighting of Taiwan'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."
The over-the-counter GRETAI Securities Market Electronics Index of the nation's smaller electronics makers climbed 21 percent last year, outperforming a 14 percent advance in a TAIEX index that tracks the performance of the nation's biggest technology companies like TSMC.
Hsieh in the fourth quarter began buying smaller companies that are part-owned by some of the nation's biggest.
He bought shares of a maker of connectors used in computers and mobile phones, Pan-International Industrial Co (廣宇科技), and a manufacturer of wireless network equipment, Cybertan Technology Inc (建漢科技), company filings in December showed.
Hon Hai, which makes music players for Apple Computer Inc and consoles for 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 nation'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-based Global Unichip after he learned at the briefing that the company is 46 percent-owned by TSMC and has access to the bigger chipmaker's production facilities.
"The trick is to find the stock and get in early," Hsieh said.
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