Should I Avoid Taiwan Semiconductor Mfg. Co. Ltd. (TSM)?

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) was in 64 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 76. TSM investors should pay attention to a decrease in support from the world’s most elite money managers lately. There were 76 hedge funds in our database with TSM holdings at the end of March. Our calculations also showed that TSM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s go over the recent hedge fund action surrounding Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

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

At Q2’s end, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. By comparison, 58 hedge funds held shares or bullish call options in TSM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is TSM A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), with a stake worth $3121.9 million reported as of the end of June. Trailing Fisher Asset Management was GQG Partners, which amassed a stake valued at $1105.8 million. Arrowstreet Capital, AQR Capital Management, and SB Management 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 29.36% of its 13F portfolio. SB Management is also relatively very bullish on the stock, setting aside 9.54 percent of its 13F equity portfolio to TSM.

Judging by the fact that Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) has experienced falling interest from the smart money, it’s safe to say that there is a sect of funds that elected to cut their positions entirely last quarter. Interestingly, Daniel S. Och’s OZ Management dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at close to $87.2 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also dropped its stock, about $46.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 12 funds last quarter.

Let’s now review 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 Alibaba Group Holding Limited (NYSE:BABA), Visa Inc (NYSE:V), NVIDIA Corporation (NASDAQ:NVDA), JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks’ market caps are closest to TSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BABA 146 16793500 11
V 162 27609638 -2
NVDA 86 9098047 6
JPM 108 4928203 -3
JNJ 88 7057087 7
WMT 71 8048192 13
UNH 105 13124871 16
Average 109.4 12379934 6.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 109.4 hedge funds with bullish positions and the average amount invested in these stocks was $12380 million. That figure was $10694 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 71 bullish hedge fund positions. Compared to these stocks Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is even less popular than WMT. Our overall hedge fund sentiment score for TSM is 18.3. 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. Hedge funds dodged a bullet by taking a bearish stance towards TSM. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th but managed to beat the market again by 6.2 percentage points. Unfortunately TSM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); TSM investors were disappointed as the stock returned -2.9% since the end of the second quarter (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

Follow Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM)

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