Five new shares have risen up the rankings to make it into elite fund managers’ 10 highest conviction positions.
Companies involved in semiconductor manufacturing dominate the new entrants to the top 10, which Fix the Future first highlighted in June.
The top 10 represents the highest-conviction positions held by the world’s top-performing fund managers, tracked by Fix the Future.
Academic research suggests fund managers’ most overweight positions tend to be their best performers and, so far, these high-conviction picks are beating the market. Since June, the original top 10 has outperformed the MSCI World index by 4.6 percentage points.
|Company||Total return (%)
28 Jun 2022 to 22 Sep 2022
|Taiwan Semiconductor Manu||-12.0|
Source: FactSet, $-based returns
Changes to the top 10 are a result of share price movements and fund manager trading, while we have also made a small change to our methodology to improve the measurement of investor clustering around high-conviction positions.
New stocks making it into the top 10:
- Samsung Electronics
- Reliance Industries
Stocks leaving the top 10:
- UnitedHealth Group
- Kweichow Moutai
- ICI Bank
Tech stocks feature heavily in the updated top 10. Asian companies dominate the list, taking up five spots, followed by the US with three, and one each from both South America and Europe. Here’s our rundown of the 10, split into the main investment themes.
Samsung Electronics and ASML are new entrants to the list, joining Tawian Semiconductor Manufacturing, in a sign of top fund managers’ strengthening focus on semiconductor companies.
They are not the only ones. The $52bn US Creating Helpful Incentives to Produce Semiconductors (Chips) act, passed into law last month, underlines just how important chip makers are becoming for economic leadership and national security. Earlier this year, the EU launched a €43bn package to promote the sector and the semiconductor industry also plays a major role in China’s latest five-year plan, which it set out at the end of 2021.
The controversial August visit to Taiwan by the Speaker of the US House of Representatives, Nancy Pelosi, included meeting with Taiwan Semiconductor Manufacturing’s (TW:2330) top brass, the company topping our 10 stock list.
TSMC is spending $12bn building a new plant in the US as part of its gargantuan $40bn annual capital expenditure designed to keep it at the forefront of chip making. It is thought the company will be eligible for money from the Chips act.
If there are challengers to this monopoly, Samsung Electronics (KR:5930) is one of them. It too has garnered attention from top US politicians this year: president Joe Biden visit to South Korea in May took in one of Samsung’s factories. However, the company has also recently lost some big leading-edge customers to its Taiwanese rival. Samsung also has a massive memory chip business as well as making consumer electronics.
Dutch lithography company ASML (NL:ASML) also plays a key role in semiconductor manufacture. Its kit is vital in helping chips get ever smaller. In the view of Alistair Wittet, elite manager of the Comgest Growth Europe fund, ‘ASML has one of the strongest technological competitive advantages of any company in Europe’
In another sign of the importance of ASML’s tech, the company has come under pressure from the US to limit its sales to China. You can read our profile of ASML here.
There are forecasts of surging demand for semiconductors for many years to come, underpinning the rise of the internet of things, autonomous vehicles, and artificial intelligence. However, the cyclical nature of the semiconductor industry cannot be ignored amid fears of a global recession. Combined with tensions in the South China Sea, they have weighed on share prices.
Recession worries are also an issue for the big tech names on our list, especially Google owner Alphabet (US:GOOGL).
The relentless transfer of advertising spend from print to pixels has previously buoyed the company even during downturns. However, there are fears digital penetration in advertising is now so advanced that the pain of a recession cannot be avoided.
What’s more, other tech players are making inroads into the digital advertising market, which for many years was dominated by Alphabet and Facebook owner Meta. Amazon has been notable for its early success in hoovering up ad dollars.
Microsoft (US:MSFT), the other big tech name in our top 10, is also trying to muscle into the ads business. It’s $75bn Activision mega-acquisition is also seen by some as an attempt to stake a claim in advertising’s new frontier: a digitally immersive ‘metaverse’. Mid-year results from Microsoft in late July were meanwhile brimming with confidence despite the rickety state of the global economy.
Away from economic ups and downs, Alphabet continues to make world-changing advances, recently announcing its DeepMind subsidiary can now predict the shape of almost every known protein.
After bruising encounters with Chinese authorities that began last year, online entertainment and video games company Tencent (HK:700) may have started to find its feet again. In September, the Chinese authorities approved a new game from Tencent for the first time since the country’s crackdown on video games began. The company has also been able to list its music streaming business on the Hong Kong stock exchange.
However, there is still plenty of reason to be cautious. Game playing times are still heavily restricted in China and Tencent has lots of games waiting for approval. The company has also recently reported its first ever drop in quarterly sales.
Mercardo Libre (US:MELI), billed by some as the Amazon of South America, is seeing few such impediments to growth. Despite economic headwinds, the e-commerce titan continues to deliver stunning numbers. Meanwhile, the rapid growth of its payments business is causing huge excitement with investors. Look out for our upcoming profile of the company.
Two companies tapping into the global energy transition make the top ten list.
India’s biggest company, Reliance Industries (IN:500325), has shown it is able to rapidly expand into new markets, including data provision and retail. The next market in the sights of the company’s billionaire boss, Mukesh Ambani, is green energy.
Reliance still makes most of its money from oil refineries but in August it announced a $10bn green energy push. Ambani wants Reliance to help make India a net exporter of low-carbon power. The company had already unveiled plans to build four massive factories aimed at the production of green tech, such as solar panels and green hydrogen.
Green hydrogen could also prove lucrative for US-listed, German industrial gases giant Linde (US:LIN). The company has found itself in a green sweet spot as more companies and governments look to hydrogen as a means to store and deploy power generated from renewables.
The company has said it is looking at about 300 projects with a value of over $20bn. A probability adjusted value of these projects for Linde has been put at $5bn. For now though, its more traditional lines of work, which includes providing gases for fossil fuel extraction, remain the mainstay of sales and profits.
Asian financial powerhouse AIA Group (HK:1299) also makes the list. The life insurer not only offers a play on the region’s strong long-term growth potential, but it is also capitalising on the limited penetration of financial products in the region.
The company has been hugely successful in tapping into this opportunity. Having seen growth slow during lockdown, business is picking up once again. Earnings are predicted to rise by more than a fifth in each of the next two 12-month periods.