"We have been cautious on the semiconductor sector since early 2018," Margate Capital tells investors in its third-quarter letter to investors, a copy of which has been reviewed by ValueWalk. The letter continues, "we believed a combination of over-shipping into the distributor channel relative to end-market demand combined with trade war-related demand destruction would lead to an inventory correction."
The fund continues to hold this view and believes that developments throughout the year have only reinforced its bearish outlook for semiconductor stocks.
Semiconductor shorts
Margate's CIO and founder Samantha Greenberg launched the fund in October 2016 after leaving her previous position at Paulson & Co., where she was the head of media, cable, satellite and consumer sectors. Margate operates a long/short equity fund with a focus on the media and consumer sectors, leveraging Greenberg's existing experience covering these industries. So far, the firm has had some success. It produced a net gain for investors of 3.9% in 2016, 7.8% in 2017 and 8.4% for the year to the end of September.
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Short positions are a key part of Margate's investment strategy. The fund ended the third quarter with a short exposure of 47% and averaged a gross exposure of 140% throughout.
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