At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) investors should be aware of a decrease in hedge fund interest in recent months. Our calculations also showed that TSM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Charles Davidson of Wexford Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).
How are hedge funds trading Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)?
At Q1’s end, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TSM over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), worth close to $1.4181 billion, amounting to 1.8% of its total 13F portfolio. On Fisher Asset Management’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $540.4 million position; 0.9% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Renaissance Technologies and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Driehaus Capital allocated the biggest weight to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), around 6.41% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, designating 6 percent of its 13F equity portfolio to TSM.
Judging by the fact that Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Josh Resnick’s Jericho Capital Asset Management said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, comprising an estimated $94 million in stock. Michael Rockefeller and KarláKroeker’s fund, Woodline Partners, also dropped its stock, about $43.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). These stocks are Mastercard Incorporated (NYSE:MA), UnitedHealth Group Inc. (NYSE:UNH), Intel Corporation (NASDAQ:INTC), and Verizon Communications Inc. (NYSE:VZ). This group of stocks’ market values are similar to TSM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MA | 139 | 11896575 | 14 |
| UNH | 104 | 6665163 | 13 |
| INTC | 73 | 5958759 | 15 |
| VZ | 68 | 2673270 | 3 |
| Average | 96 | 6798442 | 11.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 96 hedge funds with bullish positions and the average amount invested in these stocks was $6798 million. That figure was $4299 million in TSM’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 68 bullish hedge fund positions. Compared to these stocks Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is even less popular than VZ. Hedge funds dodged a bullet by taking a bearish stance towards TSM. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately TSM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); TSM investors were disappointed as the stock returned 4.2% during the second quarter (through May 22nd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.
