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Do Hedge Funds Still Like MaxLinear, Inc. (MXL)?

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 MaxLinear, Inc. (NYSE:MXL) and determine whether hedge funds skillfully traded this stock.

MaxLinear, Inc. (NYSE:MXL) has experienced a decrease in enthusiasm from smart money lately. MXL was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with MXL positions at the end of the previous quarter. Our calculations also showed that MXL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most stock holders, hedge funds are perceived as underperforming, old investment tools of years past. While there are over 8000 funds with their doors open at present, Our researchers choose to focus on the leaders of this group, about 850 funds. These investment experts manage most of the hedge fund industry’s total capital, and by watching their inimitable equity investments, Insider Monkey has found a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the latest hedge fund action regarding MaxLinear, Inc. (NYSE:MXL).

What does smart money think about MaxLinear, Inc. (NYSE:MXL)?

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MXL over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Millennium Management was the largest shareholder of MaxLinear, Inc. (NYSE:MXL), with a stake worth $8.9 million reported as of the end of September. Trailing Millennium Management was D E Shaw, which amassed a stake valued at $6.5 million. Renaissance Technologies, Citadel Investment Group, and Cinctive Capital Management 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 Cinctive Capital Management allocated the biggest weight to MaxLinear, Inc. (NYSE:MXL), around 0.4% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to MXL.

Due to the fact that MaxLinear, Inc. (NYSE:MXL) has faced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that slashed their entire stakes heading into Q4. At the top of the heap, Larry Chen and Terry Zhang’s Tairen Capital cut the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $2.3 million in stock. Brandon Haley’s fund, Holocene Advisors, also sold off its stock, about $1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MaxLinear, Inc. (NYSE:MXL) but similarly valued. We will take a look at Community Healthcare Trust Inc (NYSE:CHCT), Armada Hoffler Properties Inc (NYSE:AHH), 1st Source Corporation (NASDAQ:SRCE), and NGM Biopharmaceuticals, Inc. (NASDAQ:NGM). This group of stocks’ market valuations are similar to MXL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHCT 12 86149 -2
AHH 9 52378 3
SRCE 9 26778 -1
NGM 12 64875 5
Average 10.5 57545 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $28 million in MXL’s case. Community Healthcare Trust Inc (NYSE:CHCT) is the most popular stock in this table. On the other hand Armada Hoffler Properties Inc (NYSE:AHH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks MaxLinear, Inc. (NYSE:MXL) is more popular among hedge funds. 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 returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on MXL as the stock returned 87.8% so far in Q2 (through June 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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