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Is Taiwan Semiconductor Mfg. Co. Ltd. (TSM) Going to Burn These Hedge Funds?

Nina Todic

How do we determine whether Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) investors should pay attention to an increase in support from the world's most elite money managers lately. TSM was in 42 hedge funds' portfolios at the end of September. There were 34 hedge funds in our database with TSM holdings at the end of the previous quarter. Our calculations also showed that TSM isn't among the 30 most popular stocks among hedge funds.

According to most investors, hedge funds are seen as unimportant, old financial vehicles of yesteryear. While there are more than 8,000 funds with their doors open at present, Our researchers choose to focus on the elite of this club, about 700 funds. These investment experts oversee the majority of all hedge funds' total capital, and by paying attention to their unrivaled equity investments, Insider Monkey has identified many investment strategies that have historically outstripped the market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by 6 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

Ken Fisher FISHER ASSET MANAGEMENT

We're going to take a gander at the recent hedge fund action surrounding Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

What does the smart money think about Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)?

Heading into the fourth quarter of 2018, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in TSM over the last 13 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

No of Hedge Funds with TSM Positions

More specifically, Fisher Asset Management was the largest shareholder of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), with a stake worth $1551.9 million reported as of the end of September. Trailing Fisher Asset Management was Lansdowne Partners, which amassed a stake valued at $882.3 million. Arrowstreet Capital, AQR Capital Management, and Orbis Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). Citadel Investment Group had $142.4 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $94.8 million position during the quarter. The following funds were also among the new TSM investors: Panayotis Takis Sparaggis's Alkeon Capital Management, Christopher James's Partner Fund Management, and Larry Chen and Terry Zhang's Tairen Capital.

Let's also examine hedge fund activity in other stocks similar to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). These stocks are Cisco Systems, Inc. (NASDAQ:CSCO), Verizon Communications Inc. (NYSE:VZ), Intel Corporation (NASDAQ:INTC), and The Boeing Company (NYSE:BA). All of these stocks' market caps match TSM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSCO,58,3452726,9 VZ,51,1261387,3 INTC,58,5036426,-4 BA,53,3749389,0 Average,55,3374982,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $3.38 billion. That figure was $5.33 billion in TSM's case. Cisco Systems, Inc. (NASDAQ:CSCO) is the most popular stock in this table. On the other hand Verizon Communications Inc. (NYSE:VZ) is the least popular one with only 51 bullish hedge fund positions. Compared to these stocks Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is even less popular than VZ. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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

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