Recently, there have been concerns regarding the geopolitical risks that could have an impact on one of your holdings – Taiwan Semiconductor. We firmly believe in this company and continue to recommend holding this position for your portfolio. A highly-respected investment manager, Walter Scott & Partners, has provided some reassurance on the safety of this holding as it can be found within their portfolios.

Established in 1983, Walter Scott & Partners Limited (Walter Scott) offers global equity portfolio management to institutional investors around the world. The firm operates from its office in Edinburgh, Scotland, and has been wholly owned by BNY Mellon since 2006. Walter Scott’s investment professionals work closely together: New members are trained and mentored by senior colleagues, whose long experience combines with a very low staff turnover to ensure consistency of philosophy, process and culture. The investment team uses a strict analytical approach based on the same defined areas of research. Every portfolio is managed by bringing together the skill, judgment and experience of the entire investment team. The strategy employed to deliver significant per annum real returns, is to buy and hold companies capable of compounding wealth consistently.

Please find their commentary below:

“Geopolitics has been an aspect of investor concerns, given the tensions between Taiwan, the US, and China. The business is straddling the political divide. Management is pleased with the passing of the CHIPS and Science Act, as it incentivises US-based manufacturing and foreign direct investment from companies such as TSMC - the company is currently building a new plant in Arizona. The act will bring about an increase in investment in research and development and should help to revitalise the semiconductor industry in the US. America is a repository for leading companies in areas that are innovation and research and development-focused, and indeed TSMC’s biggest customers are American, so it makes good sense that some critical manufacturing should be onshore. However, these developments are not changing the way the company is doing business in China nor does it change its opportunity set in the country. For a ten-year period TSMC cannot expand capacity for any nodes less than 28nm (the more sophisticated nodes), although it is expanding its 28nm capacity in China mainly to support local speciality technology demand. We get the sense, however, that while the company is proving adept at balancing global political counter-currents, management’s preference would be to maintain flexibility in where it produces, including the option to manufacture more advanced products in China.”