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Is Taiwan Semiconductor Mfg. Co. Ltd. (TSM) A Good Stock To Buy?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) has experienced an increase in support from the world’s most elite money managers recently. Our calculations also showed that TSM isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gifford Combs - Dalton Investments

We’re going to check out the latest hedge fund action regarding Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

What have hedge funds been doing with Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)?

At Q1’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TSM over the last 15 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

TSM_jun2019

More specifically, Fisher Asset Management was the largest shareholder of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), with a stake worth $1337.2 million reported as of the end of March. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $354.6 million. AQR Capital Management, Orbis Investment Management, and Lansdowne Partners were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, initiated the largest position in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). Alyeska Investment Group had $10.8 million invested in the company at the end of the quarter. Gifford Combs’s Dalton Investments also initiated a $4.9 million position during the quarter. The other funds with new positions in the stock are Robert Joseph Caruso’s Select Equity Group, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). We will take a look at China Mobile Limited (NYSE:CHL), The Coca-Cola Company (NYSE:KO), The Walt Disney Company (NYSE:DIS), and Oracle Corporation (NYSE:ORCL). This group of stocks’ market values match TSM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHL 19 410052 5
KO 48 20680037 -5
DIS 114 7045572 43
ORCL 52 4994743 -2
Average 58.25 8282601 10.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.25 hedge funds with bullish positions and the average amount invested in these stocks was $8283 million. That figure was $3547 million in TSM’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 19 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. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately TSM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TSM investors were disappointed as the stock returned -7.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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