Was The Smart Money Right About Piling Into Taiwan Semiconductor (TSM)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)? The smart money sentiment can provide an answer to this question.

Is Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) a safe investment right now? Money managers were taking an optimistic view. The number of bullish hedge fund bets rose by 5 recently. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) was in 72 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 67. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TSM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 67 hedge funds in our database with TSM holdings at the end of September.

Ken Fisher of Fisher Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s review the latest hedge fund action regarding Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

Do Hedge Funds Think TSM Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 72 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TSM over the last 22 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), with a stake worth $3013.9 million reported as of the end of December. Trailing Fisher Asset Management was SB Management, which amassed a stake valued at $1301.8 million. Arrowstreet Capital, AQR Capital Management, and Viking Global were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), around 22.03% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, earmarking 7.74 percent of its 13F equity portfolio to TSM.

As one would reasonably expect, key money managers have jumped into Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) headfirst. Graham Capital Management, managed by Kenneth Tropin, established the biggest position in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). Graham Capital Management had $20.7 million invested in the company at the end of the quarter. Javier Velazquez’s Albar Capital also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are Dipak Patel’s Alight Capital, Terry Smith’s Fundsmith LLP, and Canhui Ou’s One01 Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) but similarly valued. We will take a look at Berkshire Hathaway Inc. (NYSE:BRK-B), Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), JPMorgan Chase & Co. (NYSE:JPM), Mastercard Incorporated (NYSE:MA), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market values are similar to TSM’s market value.

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As you can see these stocks had an average of 110.9 hedge funds with bullish positions and the average amount invested in these stocks was $13112 million. That figure was $11843 million in TSM’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 70 bullish hedge fund positions. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TSM is 41. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately TSM wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); TSM investors were disappointed as the stock returned 6.2% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.