Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Maxim Integrated Products Inc. (NASDAQ:MXIM).
Is Maxim Integrated Products Inc. (NASDAQ:MXIM) a buy here? Money managers are in a bullish mood. The number of long hedge fund bets improved by 1 in recent months. Our calculations also showed that MXIM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the latest hedge fund action encompassing Maxim Integrated Products Inc. (NASDAQ:MXIM).
Hedge fund activity in Maxim Integrated Products Inc. (NASDAQ:MXIM)
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 30 hedge funds held shares or bullish call options in MXIM a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, GLG Partners was the largest shareholder of Maxim Integrated Products Inc. (NASDAQ:MXIM), with a stake worth $59.5 million reported as of the end of September. Trailing GLG Partners was Two Sigma Advisors, which amassed a stake valued at $53 million. Renaissance Technologies, AQR Capital Management, and Arrowstreet Capital 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 Mondrian Capital allocated the biggest weight to Maxim Integrated Products Inc. (NASDAQ:MXIM), around 2.24% of its portfolio. Prospector Partners is also relatively very bullish on the stock, earmarking 0.45 percent of its 13F equity portfolio to MXIM.
As one would reasonably expect, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Maxim Integrated Products Inc. (NASDAQ:MXIM). Arrowstreet Capital had $20.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $6.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Benjamin A. Smith's Laurion Capital Management, and Lee Ainslie's Maverick Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Maxim Integrated Products Inc. (NASDAQ:MXIM) but similarly valued. We will take a look at Evergy, Inc. (NYSE:EVRG), Loews Corporation (NYSE:L), Deutsche Bank Aktiengesellschaft (NYSE:DB), and Nucor Corporation (NYSE:NUE). This group of stocks' market caps are closest to MXIM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVRG,25,866687,0 L,25,224303,4 DB,12,983289,1 NUE,26,167282,4 Average,22,560390,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $249 million in MXIM's case. Nucor Corporation (NYSE:NUE) is the most popular stock in this table. On the other hand Deutsche Bank Aktiengesellschaft (NYSE:DB) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Maxim Integrated Products Inc. (NASDAQ:MXIM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MXIM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MXIM were disappointed as the stock returned -1.3% during the first two months of the fourth quarter and underperformed 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.