Wedgewood Partners has released its fourth-quarter 2025 investor letter, revealing a net return of -1.8% for its composite portfolio. This performance trailed the S&P 500's 2.7% gain, the Russell 1000 Growth Index's 1.1%, and the Russell 1000 Value Index's 3.8% returns during the same period.
The investment management firm stated it anticipates stronger market volatility in coming years and has moderated its enthusiasm. Year-to-date, the composite gained 4.3%, compared to 17.9%, 18.6%, and 15.9% returns for the respective indices.
In the letter, Wedgewood Partners acknowledged that its focus on high-quality stocks, which has historically worked since 1992, did not succeed in 2025. The firm attributed the underperformance to poor stock selection, valuation corrections affecting past strong performers, and being structurally underweight in AI stocks.
The letter noted that crowded AI investments and stretched valuations in 2026 create pressure on prudent investment decisions.
Taiwan Semiconductor Manufacturing Company Limited was highlighted as a key performance contributor in the fourth quarter. The company's stock closed at $342.40 per share on January 16, 2026, with a market capitalization of $1.776 trillion. Its one-month return was 16.75%, and shares gained 61.89% over the last 52 weeks.
Wedgewood Partners quoted Broadcom's and Nvidia's CEOs referring to TSMC as a "precious source" and "the pride of the world" in silicon manufacturing. The letter stated the company continues to execute on its leading-edge node progression and capacity build-out, enabling the AI era by manufacturing nearly every compute accelerator being marketed.
The firm noted that TSMC's advanced nodes allow accelerator designers greater flexibility to increase performance while limiting power requirements. Historically, mobile devices drove most of TSMC's revenue growth, but more recently, high-performance computing now drives most of the business.
HPC revenues have doubled to more than $65 billion over the past six quarters, more than triple since late 2021. The company continues to demonstrate pricing power, which should help drive excellent returns on capital as they likely accelerate their capacity buildout over the next several years.
According to database information, 194 hedge fund portfolios held Taiwan Semiconductor Manufacturing Company Limited at the end of the third quarter, compared to 187 in the previous quarter. The company is in 9th position on a list of 30 most popular stocks among hedge funds.
In the third quarter of 2025, Taiwan Semiconductor Manufacturing Company Limited's revenue increased 6% sequentially in NT dollars.