Famously, the economy of Australia is built on digging up rocks and selling them to the rest of the world. Five thousand miles away in Taiwan, there is nothing to dig up. But the country does make little ingots of huge value to an ever-more digitalised planet.

Microchips may seem to be a rich seam for fund managers to mine – but fierce competition between producers means it’s not that simple. Some do succeed, though, and among those is Corrina Xiao of Allianz Global Investors, who is also a member of Citywire’s equities elite.

Xiao is AAA-rated by Citywire and has more or less maintained this top ranking since she gained a rating in April 2014, her first month of eligibility. And yes, that is a 100-month unbroken rating streak.

She runs the Allianz Global Investors Taiwan fund, which has returned 90.8% over three years, putting it 10th of 93 funds in Citywire’s Taiwan sector. The past year has been more choppy – the fund has lost 19.2% and stands at 62/99. But for a technology-heavy fund in a technology-driven economy, Xiao has had to be careful about how she responds to fickle global demands and inflationary pressures. There are no energy or materials companies – the saving grace for many managers this year – to dive into when demand for tech components dries up.

Wafers – the material used to make semiconductor chips – are the commodities of Taiwan, says Xiao. So when US companies adjust their inventories, demand slows. And owning ‘commodity’ tech is not only vulnerable to slowing demand but central bank behaviour as well: rising interest rates have reduced the upside from mining bitcoin. Rate hikes make this expensive, energy-intensive process less worthwhile, so fewer computers are built to do it.

The equities elite rewards consistent performance, and so far 2022 has made such consistency difficult. One result was for Xiao to increase the cash allocation in her portfolio. At the time Amplify spoke to her in July, it was at 22%.

Below is what we learned from our latest sit-down with a member of the equities elite.

On inflation…

‘Inflationary pressure remains high, so that’s why we can see liquidity is shrinking. However, in the second half, we see some real pressure.

‘People are worried about the money in their pockets because they need to pay for housing, food and energy, so they’re cutting back on buying expensive consumer products. They also bought a lot of consumer products during the pandemic – smartphones, notebook PCs and so on – as we worked from home and our children played at home.

‘Inventory is a big issue. Taiwan produces all those products for US brands, and when those companies have given guidance, they all say they need to adjust inventories. That’s why we hope we can increase our cash levels and lower the risk in our portfolios. That’s our recent view, and we try to not be too positive because this year’s story is more like one step forward, two steps back if you look at the markets.

‘In Taiwan, we don’t have those energy companies, unlike the US or China. It’s not easy to allocate money to materials companies. For us, we are more the user of these things. When material prices go up, we need to worry: how can we pass that through to the consumer? A fair strategy right now is to increase cash and wait for all the bad news in pricing. Then we can have some cash reserves to buy in at the bottom.’

On her investment philosophy…

‘We are active investors with a bottom-up approach. We believe that fundamental research and human judgment not only add value to the investment process but are also crucial in contributing to our fund performance. This is especially true in a market like Taiwan, which can be volatile and therefore provide a lot of opportunities. Our experienced professionals regularly visit companies, look into the data, analyse it and make informed decisions. Our team-based approach also means less key-person risk.’

On semiconductors…

‘Semiconductors form one of my favourite sectors. First of all, the demand for chips is growing by leaps and bounds, especially amid a global shortage. Second, Taiwan still has advantages from the [US-China] trade war. Third, our modern world runs on chips, which form the backbone of the global economy. Every tech trend – from cloud computing to self-driving cars – relies on semiconductors in some shape or form.’

Portfolio picks: A Citywire Amplify view

Faraday and TSMC

Xiao’s two biggest holdings are Taiwan Semiconductor Manufacturing (TSMC) and Faraday. Both companies help other businesses make their own chips but represent different parts of the chain.

If you need microchips for your tech-driven business, where do you get them? Intel perhaps (we all know the jingle). But perhaps you have quite specific needs, and don’t want to rely on another business to provide a core component of your next big product. The business you’ll need, ultimately, is TSMC, described by Time magazine as ‘the world’s most important company you have never heard of’ and Xiao’s biggest holding.

Its chips are in everything, and its clients include other ubiquitous behind-the-scenes businesses, such as graphics processor maker Nvidia, itself held by several elite managers.

But demand for TSMC has been high, particularly over the past two years. Can you get them to accept your business? And will they understand what you need? Enter Xiao’s second-biggest holding: Faraday Technology. Faraday plays the middleman between technology firms and so-called ‘foundry’ businesses such as TSMC. Faraday helps to design the chips, calculates order volumes and uses its clout to get small businesses access to foundries in the first place.

TSMC’s share price is up 142% over five years, buoyed particularly over 2020 and 2021. However, it is down 23% over the past 12 months. But recent announcements will all benefit the business, which has by far the largest market share and strong relationships with the likes of Apple. Its leading competitor is Samsung, based 1,500km across the East China sea in South Korea.

One development in the US is the so-called Chips Act – just approved by Congress – which would subsidise the creation of domestic fabrication plants. These would be competitors to Asian companies such as TSMC, but the US has also helped the firm to open foundries on American soil.

Faraday is up by more than 240% over five years and by 37% over one year.

Corrina Xiao: Alpha Female

What have you found supportive of your career as a fund manager? What has your firm got right?

Equal treatment for women and men is a fundamental principle of human rights and I believe the same opportunities have been given to women and men at AllianzGI.

The firm is committed to diversity and inclusion, including gender equality, fostering an inclusive workplace that benefits all our employees. We established our gender equality ambitions in 2017 and have developed actions across the employment cycle by systematically reviewing our recruitment, talent management and reward practices through a D&I lens. We are proud to have reached 50:50 male-to-female representation in the executive committee.

In Taiwan, we also have good female representation in senior management. Many of our key executives, including the chair, the head of Taiwan and the head of sales, are women.

What would get more women looking for fund manager roles?

I think the key would be creating a work environment that provides equal opportunities for everyone, regardless of gender. I believe that the selection of fund managers and the ticket to the top should have nothing to do with gender; what matters most should be the ability and performance of a fund manager.

What should asset managers do differently?

It has become more and more difficult to invest during this period. I believe that the fund management industry needs to approach research and strategy from several different points of view to overcome the challenges and uncertainties of these times. Therefore, diversity within the investment and research team would help to broaden perspectives and drive better investment decision-making.