The best stock picker of 2021 scored a rare trifecta of money management. He outperformed not only his specialist peers, but exceeded the stock-market returns of the top two industries last year. And he did it by betting on a sagging semiconductor industry whose shortages contributed to the worst supply chain woes in memory.
He is Adam Benjamin, whose Fidelity Select Semiconductors Portfolio earned 59.2%, No. 1 among 430 U.S.-based mutual funds or exchange-traded funds investing at least $5 billion over three years. Benjamin turns 51 on April 15 and had two decades of experience following computer chips when he took over the Boston-based Fidelity Investments Inc.'s Select Semiconductors in 2020, just in time to profit from Covid-19's disruptions.
The pandemic produced a sudden scarcity of silicon bits that made broadband providers suffer delays for internet routers, emptied stores of PlayStations and shut down auto assembly lines. Chip shortages wiped out an estimated $210 billion, with 7.7 million vehicles lost, according to data compiled by Bloomberg. “Never seen anything like it,” Tesla Inc. Chief Executive Officer Elon Musk tweeted last June.
All of which was the backdrop for energy, automobiles and components and semiconductors and semiconductor equipment shares leading the stock market with year-end returns of 54%, 52% and 50%, respectively. Benjamin beat all three industry groups and led the S&P Semiconductor Index benchmark by eight percentage points, with a technology veteran's insight that enabled him to time his selection of the biggest winners among semiconductor firms, according to data compiled by Bloomberg.
Proving that active money management provides opportunities unavailable to the passive, index-driven crowd, he juggled his fund’s exposure to different semiconductor stocks, adding shares of Marvell Technology Inc. and discarding a little more of Intel Inc., both based in Santa Clara, California. His idiosyncratic re-weightings of those two firms boosted Select Semiconductors' performance by 2.7 percentage points and 2.4 percentage points, respectively, relative to the benchmark, according to data compiled by Bloomberg.
Benjamin told fund shareholders in August that “demand looks set to exceed the supply of semiconductors and semiconductor capital equipment” because of global shortages and increasing use of 5G wireless networking, artificial intelligence and cloud computing, the infrastructure dependent on chip technology.
Not much has changed since then. “People want to buy cars—carmakers can’t make any more cars, because there are no semiconductors,” Federal Reserve Chair Jerome Powell testified this week before lawmakers while seeking Senate confirmation to a second term. “That’s never happened,” he said.
In an interview over Zoom earlier this month, Benjamin said, “The beautiful thing about semiconductors is they are the brains for basically all these end markets.” Without semiconductors, he elaborated, there wouldn’t be smartphones, virtual reality headsets, autonomous driving, cloud computing transition, or even electric vehicles.
As he demonstrates with the fund's unusual weightings, “I like to sell strength and buy weakness.” That “doesn't mean all of it is winners,” he said. In the transition to the cloud, he said, “there are losers” such as Intel, which appreciated just 6% in 2021, while Santa Clara-based Nvidia Corp. rallied 125% and “has been the big beneficiary of this cloud transformation/artificial intelligence because it's caused a shift in computing from traditional, centralized computing,” to “something called accelerated computing” using graphic processing units (GPUs) instead of the conventional processing units knows as CPUs.
Benjamin said he has been a regular visitor each January since 2000 to the annual Consumer Electronics Show in Las Vegas. “I'd be there to talk to industry contacts that I've been developing over 20 plus years, trying to understand what they're working on, what trends they're seeing, what are they doing day in and day out because they're living and breathing this,” he explained.
His conclusion is that “the most innovation starts with artificial intelligence, which is probably the biggest tech trend we're going to see the next 10-plus years.”
In the shorter term, he sees no “quick fix” to the dysfunctional global supply chain.
“I doubt we're ever going to see iPhones assembled here in the U.S. because not only the chips, but the contract manufacturers are so entrenched in certain parts of Asia and China and the labor that exists is just too hard to pull out,” he said. “It doesn't mean things can't come back to the U.S. But this is a long, long challenge and it's not something that we're just going to snap our fingers and make it happen.”
—With assistance from Shin Pei.
Matthew Winkler, editor-in-chief emeritus of Bloomberg News, writes about markets.