Keywise Capital’s Top Tech Picks for Q3

Fang Zheng‘s tech-focused hedge fund, Keywise Capital Management, recently submitted its 13F filing with the Securities and Exchange Commission for the reporting period of June 30. Though the Hong Kong-based hedge fund is known for running a fairly concentrated portfolio, its latest 13F filing shows that during the second quarter it increased the size of its U.S equity portfolio in terms of number of long positions by 33% to 12. The filing also revealed that the value of the fund’s U.S equity portfolio increased by 58.74% to almost $180 million as of the end of the second quarter. In this post, we will take a look at the fund’s top five tech picks heading into the third quarter of 2016, which were also its top equity picks overall.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 Vipshop Holdings Ltd – ADR (NYSE:VIPS)

 – Shares Owned by Keywise Capital Management (as of March 31): 1.16 million

 – Value of Holding (as of March 31): $12.96 million

Keywise Capital Management reduced its stake in Vipshop Holdings Ltd – ADR (NYSE:VIPS) by 30% during the second quarter, which, along with a 13.28% drop in the stock during that period contributed to Vipshop Holdings Ltd – ADR (NYSE:VIPS) falling to the fifth-largest holding in the fund’s U.S equity portfolio as of June 30, from the second-largest on March 31. Though shares of the Chinese online discount retailer have appreciated by over 20% this month, they are still trading down by 9.35% in 2016. For its first quarter, the company reported EPS of $0.16 on revenue of $1.89 billion about largely in-line with analysts’ estimates of EPS of $0.15 on revenue of $1.91 billion. Vipshop shares were held by 42 of the hedge funds in our database on March 31, up by eight quarter-over-quarter.

#4 Alibaba Group Holding Ltd (NYSE:BABA)

 – Shares Owned by Keywise Capital Management (as of March 31): 183,300

 – Value of Holding (as of March 31): $14.58 million

Apart from Vipshop, Alibaba Group Holding Ltd (NYSE:BABA) was the only stock among Keywise Capital’s top five equity holdings in which it reduced its stake during the second quarter, by 6%. Shares of the Chinese e-commerce behemoth ended the first two quarters of the year nearly flat. However, they have started rallying this month and are currently trading up by 2.83% year-to-date. Earlier this month, the company unveiled its first internet-connected car for the Chinese market, which is part of its growing Internet-of-Things (IoT) strategy. The car is based on the RX5 SUV from SAIC Motor and its mass-market model has been priced at nearly $22,000, with deliveries expected to begin in August. The company has also revealed that it is going to open its first online virtual reality (VR) demonstration shop by the end of this month. Hedge funds that increased their stake in Alibaba Group Holding Ltd during the second quarter included billionaire Ken Fisher‘s Fisher Asset Management, which upped its holding by 5% to 3.22 million shares.

Check out Mr. Zheng’s top three tech picks on the next page.

#3 Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM)

 – Shares Owned by Keywise Capital Management (as of March 31): 1.14 million

 – Value of Holding (as of March 31): $30 million

Moving on, Keywise Capital Management increased its stake in Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) by 1,749% during the second quarter, pushing the holding to the third most valuable in its equity portfolio on June 30. Shares of the semiconductor giant have been rallying since May and are currently trading at their all-time highs, with year-to-date gains of over 20%. On July 14, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) reported its second quarter results, declaring EPS of $0.083 on revenue of $6.84 billion, narrowly missing analysts’ expectations of EPS of $0.087 on revenue of $6.73 billion. Several analysts appear to have predicted the misses, having downgraded Taiwan Semiconductor just before its earnings release, including analysts at JPMorgan Chase & Co. who lowered their rating on the stock to ‘Neutral’ from ‘Overweight’ on July 12. Fisher Asset Management also increased its stake in Taiwan Semiconductor during the second quarter, by 5% to 29.24 million shares.

#2 Universal Display Corporation (NASDAQ:OLED)

 – Shares Owned by Keywise Capital Management (as of March 31): 521,200

 – Value of Holding (as of March 31): $35.34 million

Universal Display Corporation (NASDAQ:OLED) was a new entrant into Keywise Capital’s equity portfolio during the second quarter. Shares of the flat panel display manufacturer spiked in late-May after one of its largest customers, Applied Materials, Inc. (NASDAQ:AMAT), reported its earnings. Goldman Sachs’ analyst Brian Lee upgraded the stock to ‘Buy’ from ‘Neutral’ shortly after and hiked his price target on it to $76 from $55. Universal Display Corporation (NASDAQ:OLED)’s stock is trading up by 24.14% year-to-date and very close to its lifetime high, which it made recently. Analysts are expecting the company to report EPS of $0.50 on revenue of $68.68 million for the second quarter compared to EPS of $0.41 on revenue of $58.09 million a year earlier. Joel Greenblatt‘s Gotham Asset Management was the only hedge fund among those covered by Insider Monkey that sold off its stake in the company during the first quarter.

#1 NVIDIA Corporation (NASDAQ:NVDA)

 – Shares Owned by Keywise Capital Management (as of March 31): 1.15 million

 – Value of Holding (as of March 31): $53.83 million

NVIDIA Corporation (NASDAQ:NVDA) continued to remain Keywise Capital Management’s top equity pick as of the end of the second quarter. The fund initiated its stake in the visual computing company in the first quarter and increased it by 7% during the second quarter. Barring stocks that are from the energy or precious metals space, NVIDIA Corporation (NASDAQ:NVDA) has been one of the best performing large-cap stocks this year, having appreciated by 62.58% year-to-date. However, this rally has lowered the stock’s annual dividend yield significantly, down to 0.85%. One of the main reasons for the stock having performed so well this year has been the company’s Pascal architecture GPU’s, which are selling like hotcakes. Owing to the phenomenal sales, analysts are projecting the company to report EPS of $0.37 on revenue of $1.35 billion for its second quarter of fiscal year 2017, significantly above the EPS of $0.05 on revenue of $1.15 billion that it had pulled in for the same quarter of the previous fiscal year. Sander Gerber‘s Hudson Bay Capital Management initiated a large stake in NVIDIA Corporation during the first quarter and was the largest shareholder of the company in our system on March 31, owning nearly 80 million shares.

Disclosure: None