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Should You Keep Your Taiwan Semiconductor (TSM) Position?

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ClearBridge Investments, an investment management firm, published its “International Growth ACWI ex-US Strategy” first quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge International Growth ACWI ex-US Strategy underperformed the benchmark MSCI ACWI ex-U.S. Index for the first quarter. The Strategy sustained losses across seven of the nine sectors in which it was invested (out of 11 total), with the IT and financials sectors the primary detractors. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

ClearBridge Investments, in its Q1 2021 investor letter, mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM), and shared their insights on the company. Taiwan Semiconductor Manufacturing Company Limited is a Hsinchu, Taiwan-based semiconductor manufacturing company that currently has a $558.6 billion market capitalization. Since the beginning of the year, TSM delivered a 10.03% return, extending its 12-month gains to 115.01%. As of June 14, 2021, the stock closed at $119.45 per share.

Here is what ClearBridge Investments has to say about Taiwan Semiconductor Manufacturing Company Limited in its Q1 2021 investor letter:

"While we maintain high conviction in many of the emerging and secular growth names in the portfolio,-- we continue to hold Taiwan Semiconductor, the world’s largest foundry. Semiconductor shortages, caused by a combination of years of capacity reductions, COVID-19 lockdowns and better than expected rebounds in industries like autos, will cause short-term revenue pressure but are allowing companies to exert pricing power as they race to replenish depleted inventories."

Semiconductor
Semiconductor

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Our calculations show that Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Taiwan Semiconductor Manufacturing Company Limited was in 76 hedge fund portfolios, compared to 72 funds in the fourth quarter of 2020. TSM delivered a 0.08% 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, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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.