Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Xilinx, Inc. (NASDAQ:XLNX) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Xilinx, Inc. (NASDAQ:XLNX) a good investment right now? Prominent investors are getting less optimistic. The number of long hedge fund positions decreased by 1 lately. Our calculations also showed that XLNX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="600"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to view the key hedge fund action encompassing Xilinx, Inc. (NASDAQ:XLNX).
What have hedge funds been doing with Xilinx, Inc. (NASDAQ:XLNX)?
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in XLNX a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arrowstreet Capital held the most valuable stake in Xilinx, Inc. (NASDAQ:XLNX), which was worth $229.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $214.6 million worth of shares. Alkeon Capital Management, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ratan Capital Group allocated the biggest weight to Xilinx, Inc. (NASDAQ:XLNX), around 2.18% of its 13F portfolio. Mark Asset Management is also relatively very bullish on the stock, designating 1.03 percent of its 13F equity portfolio to XLNX.
Judging by the fact that Xilinx, Inc. (NASDAQ:XLNX) has witnessed falling interest from hedge fund managers, it's easy to see that there were a few hedge funds that slashed their full holdings by the end of the third quarter. Interestingly, Principal Global Investors's Columbus Circle Investors sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth an estimated $27.5 million in call options. Nehal Chopra's fund, Ratan Capital Group, also said goodbye to its call options, about $23.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Xilinx, Inc. (NASDAQ:XLNX) but similarly valued. We will take a look at Ball Corporation (NYSE:BLL), Baker Hughes, a GE company (NYSE:BHGE), Agilent Technologies Inc. (NYSE:A), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks' market valuations resemble XLNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLL,28,556069,1 BHGE,33,954876,15 A,37,1857520,-2 IDXX,29,509187,-8 Average,31.75,969413,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $969 million. That figure was $1040 million in XLNX's case. Agilent Technologies Inc. (NYSE:A) is the most popular stock in this table. On the other hand Ball Corporation (NYSE:BLL) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Xilinx, Inc. (NASDAQ:XLNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately XLNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on XLNX were disappointed as the stock returned 17.7% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.