(Bloomberg) — For Asian investors worried about overheating in artificial intelligence stocks, one top fund manager offers a surprising reason to keep buying them: dividends.
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“All of our tech companies in Asia have net cash balance sheets and currently pay dividends. We expect all of them to increase their dividends as their revenues grow over the next few years.” said co-manager Sam Conrad. Jupiter's Asia Income Strategy said in an interview. In contrast, U.S. peers “don't have the same emphasis on paying dividends,” he said.
Income funds are known for investing in low-risk stocks with stable dividends, such as banks and utilities, but Mr. Conrad's strategy has brought his holdings in technology stocks to an all-time high of about 32%. He said that it is now the highest allocation. Taiwan Semiconductor Manufacturing Co., Asia's largest chipmaker, and Samsung Electronics are among the biggest investors.
The AI ​​boom is driving gains in tech stocks in the region, but they have lagged far behind the strong gains of U.S. peers such as Nvidia. As such, it remains relatively cheap, and few investors appear to be prepared to invest the time in the momentum trades that are moving so many stocks. To the highest level ever.
“If you look at the valuations of the Asian tech stocks that we own versus the U.S. tech stocks and the history, it's really attractive,” Conrad said. Jupiter's $2 billion Asia Income strategy has outperformed 97% of his peers over the past five years.
TSMC's forward P/E ratio for next year is about 19x, in line with its average over the past five years, compared to the Philadelphia Semiconductor Index's 27x. MediaTek Inc. (the largest holding in Konrad's portfolio as of February) has a fiscal 2024 dividend yield of 5.2%, while Nvidia's dividend yield is 0.02%.
Payment growth is also better in Asia. Dividends for stocks in the Bloomberg Asia-Pacific Semiconductor Index are estimated to rise nearly 30% over the next 12 months, compared with 20% for the Philadelphia Chip Gauge, according to data compiled by Bloomberg.
However, the SOX index has risen 94% since the end of 2022, outpacing the 60% rise in the Asian chip index.
Conrad said he prefers “world leaders” who can outperform their U.S. peers in terms of technology and capabilities. While the United States is known for its high-profile design and consumer software companies, Asia still has many major, lesser-known contractors and suppliers.
“We don't know which of America's biggest tech companies are going to develop killer apps or killer products or services,” he said. “It doesn't matter who it is because they're going to need semiconductors made by a company we own. They're going to need semiconductors made by a company we own in Asia. We need to manage data servers. They want to buy memory from a company we own.”
(Added chip gauge performance details in 8th paragraph)
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