Inside the Portfolio: Selling AI stocks and Asian tech, buying EM electronics

Ever wanted a deeper insight into how fund managers are seeing markets, and the first-hand thinking behind what they've been adding and removing from their portfolios?

In this new series, Inside the Portfolio, we're looking to do just that. We ask a fund manager to take us under the hood of their portfolio, explaining all the big recent changes - the ins, the outs, the overweights and underweights - as well as how they're thinking about markets more broadly.

This week, we spoke to Skerryvore Asset Management Lead Portfolio Manager Glen Finegan on the moves it's making in emerging markets - and why valuation discipline has seen them move away from "expensive index winners" to genuine quality. 

What was the most notable addition to the portfolio recently and why?

We recently took a new position in Mobile World (HOSE: MWG), Vietnam’s leading organised retailer of mobile phones and consumer electronics, with a growing presence in grocery retail. 

The attraction is the combination of a mature, cash-generative core business and a long-duration growth opportunity. Mobile World’s electronics business - Dien May Xanh - remains the cash engine of the group. 

It benefits from a dominant market position, national scale, strong supplier relationships and a long track record of profitability. That financial strength has allowed management to invest patiently in the nationwide expansion of Bach Hoa Xanh, its grocery retail chain. 

We were attracted to Mobile World because it fits a familiar Skerryvore pattern: an aligned and capable management team, a strong domestic franchise, a large under-penetrated market and an attractive valuation. 

The near-term environment in Vietnam remains uneven, but we believe the company has the financial strength and competitive position to invest through the cycle and create value for patient shareholders.

What was the most notable sell or downsize in the portfolio recently?

We reduced the size of our holdings in Taiwanese companies MediaTek (TWSE: 2454) and Airtac (TWSE: 1590) following very strong share price appreciation. Both remain high-quality businesses that we continue to admire. 

MediaTek has built a strong position in smartphone semiconductors and has more recently benefited from growing investor interest in its relationship with Google and the potential for custom AI chips to provide an alternative to Nvidia’s dominant position. 

A year ago, the market was more focused on the cyclical slowdown in smartphones. Since then, expectations have shifted meaningfully, and the share price has re-rated to reflect a much more optimistic view of the company’s long-term growth prospects.

Airtac has also performed strongly. It is a well-managed Taiwanese manufacturer of pneumatic components used in industrial automation, with a sizeable presence in mainland China. 

We bought the business when China’s weak industrial environment gave us the opportunity to invest in an excellent franchise at a reasonable valuation. Our reductions should not be read as a change in our view of the quality of either business. They are examples of our valuation discipline. 

We aim to own good businesses when we believe the prospective returns are attractive, but we are also prepared to reduce exposure when strong share price performance brings the valuation closer to, or beyond, our estimate of fair value. 

That discipline can be uncomfortable when momentum remains strong, but we believe it is essential to protecting clients’ capital and recycling it into areas where future returns look more attractive.

One of our most notable overweights is to selected Chinese industrial businesses, with Hongfa Technology (SSE: 600885) being a good example. Hongfa is a leading manufacturer of relays, which are small but critical components used to control electrical circuits. 

They are found in a wide range of end markets, including household appliances, industrial automation, electric vehicles, renewable energy equipment and broader electrification. It is not a business that attracts the same attention as the more visible parts of the technology market, but it sits behind several long-term structural growth trends. 

What we like about Hongfa is the combination of a strong competitive position, a long track record of operational execution and exposure to areas where demand should grow over many years. Electrification, factory automation and the increasing electronic content of cars and industrial equipment all require reliable components. 

These are not fashionable themes in the same way as AI, but they are important, durable and underpinned by real-world investment.

The valuation opportunity is also important. Three years ago the fund had very little exposure to Chinese equities as we couldn’t find shares that met our absolute return hurdle. Today, Chinese equities have been out of favour for a while, and that has allowed us to find businesses where the long-term prospects appear better than the share price suggests. 

This is exactly the type of opportunity we are looking for: a quality business, with aligned and capable management, exposed to long-term growth, but priced at a level that allows us to meet our absolute return minded focus.

Our allocation of capital to this area is therefore not a broad call on China, nor a view that all Chinese industrials are attractive. It is the result of bottom-up work on specific businesses where we believe the market is under-appreciating the durability of the franchise and the potential for long-term compounding.

What’s your most notable underweight and why?

Our most notable underweight is within the Asian technology sector as we are being true to our long-term valuation discipline. We do own select technology businesses where we have conviction in the quality of the franchise, and the long-term growth opportunity. 

However, we have been taking profits in names where strong share price performance has moved potentially faster than our assessment of long-term intrinsic value. 

TSMC, MediaTek and Airtac are examples of businesses we admire but where valuation discipline has required us to reduce position sizes after strong gains. 

The issue is not that we doubt the importance of AI or advanced semiconductor technology. These are powerful long-term developments. The question is how much of that future value accrues to minority shareholders after competition, capital expenditure, depreciation and cyclicality are taken into account. 

In periods of excitement, markets can move quickly from recognising a genuine structural opportunity to pricing in a near-perfect outcome.

That is where our discipline matters. We do not want the portfolio to become increasingly exposed to a narrow group of expensive index winners simply because they have gone up. 

The benchmark has no valuation discipline. It owns more of a company as the share price rises. We have to ask whether the future return from today’s price is still attractive. 

In several areas of Asian technology, we believe the market is now discounting very optimistic assumptions. We would rather recycle capital into high-quality businesses where expectations are lower and the prospective return profile is more compelling.

What’s been one of your most notable performers recently?

One of the more notable areas of performance weakness has been India, where some of our holdings have been affected by a combination of higher oil prices, currency pressure and a more cautious view of domestic consumption. India remains one of the most attractive long-term opportunities in emerging markets, but it is not immune to shorter-term pressures. 

Higher oil prices matter because India is a large importer of energy. That can create conditions where even good companies see their share prices come under pressure.

Our view is that the long-term case for India remains intact. It has a large and young population, rising formalisation, improving infrastructure, deepening financial penetration and significant room for growth across categories such as banking, consumer goods, healthcare and retail. 

We are not interested in buying India indiscriminately, particularly where valuations already discount too much optimism. But we remain attracted to well-managed Indian businesses with strong competitive positions, conservative balance sheets and long runways for growth. 

Short-term weakness can therefore be useful if it allows us to add to businesses where the long-term earnings power is undiminished but the share price has become more attractive. 

As always, the question for us is not whether a country or sector is popular today, but whether the company we own can compound value over time and whether we are being paid adequately for the risks we are taking.

What themes and trends are dominating discussions right now?

The investment team has been particularly focused on taking advantage of opportunities within parts of the emerging markets universe that have been left behind by the current key drivers. 

We continue to find attractive opportunities in less popular areas such as India, Brazil, South Africa, Vietnam, Mexico and selected parts of China. These markets offer exposure to long-term themes that are very different from the current AI cycle: financial deepening, formalisation of retail, healthcare penetration, industrial automation, premiumisation, infrastructure investment and the growth of well-managed domestic champions. 

That is why we are spending time on areas that are currently less fashionable. Periods of market narrowness are uncomfortable, but they can also create the conditions for future returns. 

We believe the portfolio today gives clients access to a more diverse set of emerging market opportunities than the index, with better valuation support, stronger balance sheets and a strong focus on the alignment with owners and management teams that should benefit long-term minded patient investors.

Managed Fund

Skerryvore Global Emerging Markets All-Cap Equity Fund

Global Shares

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