Tech Gurus Keywise Capital Take Profit from Alibaba (BABA) Stake, Like Semiconductors, China

Hong-Kong based, tech-focused hedge fund Keywise Capital Management recently submitted its 13F for the September quarter with the SEC, revealing a U.S public equity portfolio worth $225.79 million at the end of September. Founded by Fang Zheng, the fund currently manages regulatory assets worth over $1.6 billion and primarily invests in companies based in the Greater China market.

Keywise Capital Management has always run a concentrated U.S equity portfolio, however, its last two 13F filings suggests that it has been increasing its exposure to the American market. According to the latest filing, Keywise Capital initiated a stake in four stocks and sold out of only one stock during the third quarter, thereby increasing the size of its portfolio to 15 holdings at the end of September from 12 holdings at the end of June. In this article, we’ll take a look at the fund’s top five stock picks at the end of third quarter and will discuss how these stocks have performed of late.

– Related Reading: 11 Surreal Places to Visit in China Before You Die

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5 Alibaba Group Holding Ltd (NYSE:BABA)

– Shares Owned by Keywise Capital Management (as of September 30): 97,720

– Value of the Holding (as of September 30): $10.34 Million

Keywise Capital Management initiated a stake in Alibaba Group Holding Ltd (NYSE:BABA) during the first quarter, when the stock was trading under $80. During the third quarter, amid an over 30% rise in the stock, the fund booked some profit by reducing its stake in the company by 46%. Considering that the stock has fallen considerably in the current quarter, especially after the election results, it seems the fund made a wise decision by reducing its holding. Though Alibaba Group Holding Ltd (NYSE:BABA) reported stellar numbers for its fiscal year 2017 second quarter earlier this month, investors are concerned that with Donald Trump at the helm, there is a possibility of tariffs being imposed on Chinese imports to the U.S, which would affect Alibaba’s business. Most analysts who track the stock are also not bullish on it in the short-term, citing the possibility of further devaluation of the Yuan and the ongoing SEC investigation against the company on charges of accounting fraud.

#4 TAL Education Group (ADR) (NYSE:XRS)

– Shares Owned by Keywise Capital Management (as of September 30): 149,800

– Value of the Holding (as of September 30): $10.61 Million

TAL Education Group (ADR) (NYSE:XRS) was a new entrant in Keywise Capital Management’s equity portfolio during the third quarter. The company is engaged in the business of providing after-school tutoring programs for primary and secondary school students in China. TAL Education Group (ADR) (NYSE:XRS)’s stock has witnessed a massive rally this year and even after correcting by more than 12% since the election results were announced, is still up by 51.75% for 2016. For its most recent quarter, the company reported EPS of $0.70 on revenue of $271.12 million, beating analysts estimates by a hearty $0.17 and $20.6 million, respectively. Following the double beat, analysts at Credit Suisse Group AG upgraded the stock to ‘Outperform’ from ‘Neutral’ on October 28.

We’ll check out Keywise’s three favorite U.S-traded stocks on the next page.

#3 YY Inc (ADR) (NASDAQ:YY)

– Shares Owned by Keywise Capital Management (as of September 30): 212,400

– Value of the Holding (as of September 30): $11.32 Million

YY Inc (ADR) (NASDAQ:YY) was another stock that made its debut in Keywise Capital Management’s equity portfolio during the third quarter. The karaoke-site firm lost a chunk of its market cap in the second quarter after reports emerged that a consortium of investors, which included Xiaomi founder Lei Jun, had pulled out their $2.5 billion takeover bid for the company. On June 15, the company announced that its board has authorized a $200 million buyback program for the next 12 months that will cover shares and convertible notes that are due in 2019. At the end of last month, analysts at HSBC initiated coverage on the stock with a ‘Buy’ rating and $61 price target, which suggests potential upside of 38.8%.

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

– Shares Owned by Keywise Capital Management (as of September 30): 2.31 Million

– Value of the Holding (as of September 30): $70.56 Million

Moving on, Keywise Capital Management more than doubled its stake in Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) during the third quarter, which pushed the company to the second spot in the fund’s portfolio at the end of September, up from the third spot at the end of June. In the last five years, shares of the semiconductor giant have appreciated by 123% and they are currently trading up by 26.81% year-to-date. Most analysts who track the stock expect this bull run to continue on the back of record sales of the recently launched iPhone 7 and Apple’s decision to design its own chips for the new Macs, which will be manufactured by Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM). The rally in the stock price aside, several analysts also consider Taiwan Semiconductor to be one of the best stocks for dividend investors, as the stock has one of the highest forward yields in the semiconductor industry, at 3.26%.

#1 NVIDIA Corporation (NASDAQ:NVDA)

– Shares Owned by Keywise Capital Management (as of September 30): 1.17 Million

– Value of the Holding (as of September 30): $80.51 Million

With Keywise Capital Management upping its stake in the company by 3% and NVIDIA Corporation (NASDAQ:NVDA)’s stock appreciating by over 40% during the third quarter, the visual computing company remained the fund’s top stock pick at the end of September. NVIDIA Corporation (NASDAQ:NVDA) has been one of the best performing large-cap stocks this year, having registered a gain of 153.75% so far in 2016. While this terrific upward move has been great for the existing shareholders of the company, it has pushed the stock’s annual dividend yield considerably lower, from 1.7% at the start of the year to 0.67% currently. On November 14, Needham & Company’s analyst Rajvindra Gill released a note in which he upgraded the stock to ‘Buy’ from ‘Hold’ and also raised his price target on it to $100 from $87.97. In his note, Mr. Gill mentioned that the firm’s upgrade is based on, “long-term secular trends: 1) incorporation of ADAS applications in automotive market (25MM+ cars by 2019) and where NVDA’s Drive PX2 supplies Level 3-5 autonomy (~$6B TAM); 2) proliferation of machine learning, AI and graphics virtualization in the data center; and 3) emergence of virtual reality devices in PC and gaming mkts driving higher graphics content.”

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