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Were Hedge Funds Right About Souring On Maxim Integrated Products (MXIM)?

Asma UL Husna

A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let's study the hedge fund sentiment to see how those concerns affected their ownership of Maxim Integrated Products Inc. (NASDAQ:MXIM) during the quarter.

Maxim Integrated Products Inc. (NASDAQ:MXIM) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that MXIM isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross, Adage Capital Management

Let's take a peek at the recent hedge fund action encompassing Maxim Integrated Products Inc. (NASDAQ:MXIM).

Hedge fund activity in Maxim Integrated Products Inc. (NASDAQ:MXIM)

At Q4's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards MXIM over the last 14 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

MXIM_mar2019

The largest stake in Maxim Integrated Products Inc. (NASDAQ:MXIM) was held by Renaissance Technologies, which reported holding $85.7 million worth of stock at the end of September. It was followed by Millennium Management with a $74.1 million position. Other investors bullish on the company included Two Sigma Advisors, AQR Capital Management, and GLG Partners.

Because Maxim Integrated Products Inc. (NASDAQ:MXIM) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who sold off their positions entirely heading into Q3. At the top of the heap, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners cut the largest investment of all the hedgies monitored by Insider Monkey, valued at close to $37.2 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $9.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let's now review hedge fund activity in other stocks similar to Maxim Integrated Products Inc. (NASDAQ:MXIM). We will take a look at CMS Energy Corporation (NYSE:CMS), Citizens Financial Group Inc (NYSE:CFG), Regions Financial Corporation (NYSE:RF), and WPP plc (NYSE:WPP). This group of stocks' market values are similar to MXIM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CMS,21,339800,-1 CFG,43,1363944,1 RF,42,674539,11 WPP,11,53798,3 Average,29.25,608020,3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $608 million. That figure was $342 million in MXIM's case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand WPP plc (NYSE:WPP) is the least popular one with only 11 bullish hedge fund positions. Maxim Integrated Products Inc. (NASDAQ:MXIM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately MXIM wasn't in this group. Hedge funds that bet on MXIM were disappointed as the stock returned 7.4% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

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