Sat, Nov 24, 2018 - Page 11 News List

Top fund manager snubs Samsung stake for TSMC

VOLATILITY:TSMC was not hit as hard by an end to the industry’s ‘supercycle’ for DRAM and NAND chips that saw Samsung fall 17% for the year through Thursday

Bloomberg

A fund manager at Columbia Threadneedle Investments has sold all of his stake in Samsung Electronics Co, but is still betting on the industry, just via its Taiwanese rival.

Dave Dudding, who helps oversee US$485 billion globally, said he is still holding shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) because its chip business is less volatile than Samsung’s.

His fund has outperformed 87 percent of its peers in the past three years.

“Samsung is a good franchise, but it’s a bit volatile,” said Dudding, who is based in London.

His fund’s strategy is to pick only about 40 stocks globally, selecting companies that have sustainable, high returns, low debt levels, stable earnings and business models with a competitive advantage.

“For now, we slightly prefer TSMC and its steadier business,” he said.

While Dudding declined to comment on the timing of his exit from Samsung, data compiled by Bloomberg showed that his fund still owned it as of the end of July, along with TSMC.

Now it is not holding any South Korean shares, although Dudding did not rule out buying Samsung again given valuations.

Samsung has fallen 17 percent this year through Thursday as prices of its two core products — DRAM and NAND chips — have dropped on concerns over an end to the so-called “supercycle” in the memorychip industry.

TSMC, which does not make DRAM and NAND chips, has lost just 4.6 percent.

TSMC’s revenue comes from foundry services, which produce various kinds of made-to-order chips for multiple clients — it is the exclusive manufacturer of Apple Inc’s iPhone processors.

The company holds half of the industry’s market share, versus about 5 percent for Samsung, according to IC Insights.

“Shares of Samsung have fluctuated amid the controversies over whether the DRAM chip price reached its peak or not, and TSMC has been relatively free from the debates,” said Yoon Joon-won, a fund adviser at HDC Asset Management in Seoul. “In the foundry business, it is true that TSMC has held more clients than Samsung.”

In a note this week, Citigroup Inc said that TSMC shipments would increase in the first three months of next year, boosting revenue.

Wafer demand from Android processors and baseband-station chipsets could more than offset weakness from Apple, the brokerage said.

Dudding also sold all of his shares in Tencent Holdings Ltd (騰訊) when the stock was at about HK$400.

It has not traded at that price since June and closed at HK$295 on Thursday.

For Chinese equities, he is looking for opportunities in the consumer sector, such as drinks companies, rather than big banks or infrastructure-related stocks.

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