A fund focusing on smaller Taiwanese firms in the artificial intelligence (AI) supply chain has emerged as a big winner, with a diversified strategy helping it weather the volatility that has rattled the industry over the past year.
The Nomura Taiwan High Tech Fund run by George Hsieh (謝文雄) has outperformed 99 percent of its peers and returned 164 percent in the last 12 months. Despite the war in Iran, it has gained 29 percent so far this year, versus a 9.5 percent increase for the benchmark TAIEX.
By betting on firms that Hsieh said occupy different stages of the AI supply chain, the fund has mitigated its risk exposure. A fact sheet shows nine of its top 10 holdings — ranging from packaging to circuit board specialists — each have a market value below US$25 billion.
Photo: Chiang Ying-ying, AP
The US$1.4 trillion-strong chip giant Taiwan Semiconductor Manufacturing Co (台積電) carries the second-biggest weighting in the portfolio.
“Some companies hold a near-monopoly status, specifically within niche fields like AI servers or advanced components, allowing them to consistently capture the lion’s share of the market,” Hsieh said, adding that such Taiwanese firms “actually began factoring in these potential risks some time ago.”
The resilience of the fund, which had NT$12.6 billion (US$394.38 million) assets as of the end of February, shows the benefits of a strategy that avoids heavy concentration on a particular group of industry players. The crowded trade in chipmakers has been especially vulnerable in recent months, battered by concerns over issues from high spending levels to valuations and elevated energy costs following the Iran war.
“There’s a severe shortage of capacity” for components such as advanced processing nodes and packaging technologies, “because you have to depend on those to achieve these massive multiples” of AI firms, Hsieh said.
Vast demand for memory chips from AI data centers in turn spurs growth in other sectors that supply parts to chipmakers, multiplying growth across all layers of the AI supply chain, he said.
Among the fund’s top holdings are circuit-board producers Unimicron Technology Corp (欣興電子) and Nan Ya Printed Circuit Board Corp (南亞電路板), packaging services provider Powertech Technology Inc (力成科技), USB drive maker Phison Electronics Corp (群聯電子), as well as semiconductor tester Chunghwa Precision Test Tech Co (中華精測).
The fund has been adjusting its holdings in such companies and plans to increase them if the industry’s demand dynamics remain robust while valuations become cheaper, Hsieh said.
The fund has also outperformed 94 percent of its peers in the past five years, delivering a return of 32 percent.
However, if the Middle East conflict extends beyond three to four months, Taiwanese tech firms would not be immune to reduced profit margins, as the nation might restrict the supply of power or chemicals, Hsieh said.
Still, he expects demand for such firms’ products to remain robust in the long term.
“We anticipate that once the external environment stabilizes — for instance, if peace talks commence or these geopolitical factors subside — the stock prices that had previously dipped will rebound,” he added.
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