We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Xilinx, Inc. (NASDAQ:XLNX) and determine whether hedge funds skillfully traded this stock.
Is Xilinx, Inc. (NASDAQ:XLNX) a safe investment right now? The smart money was taking an optimistic view. The number of long hedge fund bets advanced by 9 lately. Xilinx, Inc. (NASDAQ:XLNX) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistics is 56. Our calculations also showed that XLNX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 38 hedge funds in our database with XLNX positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to take a look at the new hedge fund action regarding Xilinx, Inc. (NASDAQ:XLNX).
Hedge fund activity in Xilinx, Inc. (NASDAQ:XLNX)
At the end of June, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the first quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in XLNX a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Xilinx, Inc. (NASDAQ:XLNX) was held by Matrix Capital Management, which reported holding $242.5 million worth of stock at the end of September. It was followed by SoMa Equity Partners with a $196.8 million position. Other investors bullish on the company included Polar Capital, Alkeon Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position SoMa Equity Partners allocated the biggest weight to Xilinx, Inc. (NASDAQ:XLNX), around 7.67% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 5.21 percent of its 13F equity portfolio to XLNX.
Consequently, key money managers have jumped into Xilinx, Inc. (NASDAQ:XLNX) headfirst. Renaissance Technologies, established the most valuable position in Xilinx, Inc. (NASDAQ:XLNX). Renaissance Technologies had $58.1 million invested in the company at the end of the quarter. Gavin Baker's Atreides Management also made a $26 million investment in the stock during the quarter. The other funds with brand new XLNX positions are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Leon Shaulov's Maplelane Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now review 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 TransDigm Group Incorporated (NYSE:TDG), McCormick & Company, Incorporated (NYSE:MKC), Verisign, Inc. (NASDAQ:VRSN), Moderna, Inc. (NASDAQ:MRNA), Motorola Solutions Inc (NYSE:MSI), V.F. Corporation (NYSE:VFC), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks' market values resemble XLNX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDG,62,6065530,4 MKC,32,251773,1 VRSN,47,6245654,6 MRNA,37,788433,12 MSI,36,535822,2 VFC,27,558958,8 PH,39,1172205,7 Average,40,2231196,5.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $2231 million. That figure was $1055 million in XLNX's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 27 bullish hedge fund positions. Xilinx, Inc. (NASDAQ:XLNX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XLNX is 63.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately XLNX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on XLNX were disappointed as the stock returned 6.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.