Time to Sell Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)?

·3 min read

Wedgewood Partners, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of +2.75% was recorded by the fund for the third quarter of 2021, outperforming the S&P 500 Index that delivered a +0.58% return for the same period, and the +1.16% gain of the Russell 1000 Growth Index. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Wedgewood Partners, in its Q3 2021 investor letter, mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) and discussed its stance on the firm. Taiwan Semiconductor Manufacturing Company Limited is a Hsinchu, Taiwan-based semiconductor manufacturing company with a $590.6 billion market capitalization. TSM delivered a 4.28% return since the beginning of the year, while its 12-month returns are up by 31.14%. The stock closed at $112.56 per share on October 14, 2021.

Here is what Wedgewood Partners has to say about Taiwan Semiconductor Manufacturing Company Limited in its Q3 2021 investor letter:

"Taiwan Semiconductor Manufacturing detracted from performance as the market attempted to price in a downturn in the semiconductor cycle. Although there are some signs that memory markets might be somewhat oversupplied, we have yet to see any tangible signs that logic semiconductors – particularly at the leading-nodes where the Company dominates – are in anything but short supply. In addition, and as a result of this strong demand, the Company should be able to pass through price increases to help fund very attractive returns on the rare leading-edge capacity that serves this demand."



Based on our calculations, Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. TSM was in 64 hedge fund portfolios at the end of the first half of 2021, compared to 76 funds in the previous quarter. Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) delivered a -1.91% return in the past 3 months.

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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this biotech 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.

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

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