Societe Generale‘s latest guide on Exchange Traded Funds notes a rise of bearish calls on U.S. exchange listed companies in the semiconductor and natural gas sectors. Short interest in both ETFs, Market Vectors Semiconductor ETF (MUTF:SMH) and United States Natural Gas Fund (NYSEARCA:UNG), has risen 391 percent and 243 percent respectively since December 2012.
The semiconductor industry shows cyclical growth with periods of boom driven by developments in the smartphone industry and pressures from inventory supply. Conforming with this view, Goldman Sachs in its note said that 2013 would be the year for another semiconductor boom. Their report said that the industry has a history of outperforming only once every five years and this could be that year. However their analysis admitted that the under-performance in 2012 was attributable to bearish investor sentiment prevailing in the industry.
Semiconductors Target of hedge funds
Several semicondutor manufacturers have been a target of short bets in Europe. AIXTRON SE (NASDAQ:AIXG) (ETR:AIXA) (FRA:AIXA), a German technology solutions company is active in making products that contain silicon or organic semiconductor materials. AIXTRON is a short bet of several big names including, AQR Capital and Maverick Capital whereas Citadel Advisors and Pennant Capital reduced their shorts to below 0.5 percent. Total short interest disclosed by hedge funds (with exposure above 0.5 percent ) is now up to 11.5 percent of of Aixtron’s outstanding shares. Lee Ainsile’s Maverick Capital has the largest bet against AIXTRON amounting to 5.36 percent of Aixtron. Overall Aixtron is up 42 percent YTD, however the shares dipped in February and towards the end of April.
Soitec SA (EPA:SOI) is a short bet of TT International, The Blackstone Group L.P. (NYSE:BX) and others. The French producer of silicon-on-chip systems has shown the same pattern of stock performance like AIXTRON SE (NASDAQ:AIXG) (ETR:AIXA) (FRA:AIXA). Shares were down in February and April, however stock is trading up since May kicked off. Soitec SA (EPA:SOI) recently signed an agreement that will allow it to sell its photovoltaic systems in Arab states and in Saudi Arabia.
Dialog Semiconductor plc (FRA:DLG) is a short bet of AQR Capital, Tremblant Capital, GAM Investment and Egerton Capital. Shares are down 9.5 percent YTD. Dialog Semiconductor plc (FRA:DLG) provides integrated power solutions with wireless technology. In a recent Q1 earnings call, the company reported an increase in revenue of 8 percent.
Other companies that have been targeted by short sellers are Infineon Technologies AG (OTCMKTS:IFNNY) and ASM International NV (NASDAQ:ASMI)(AMS:ASM).
None of the above mentioned companies are showing the losses that the short sellers would be hoping for, but if the semiconductor industry is indeed cyclical then there might be reward in waiting it out.
Further reading Lone Pine Capital’s $650 Million Short Portfolio