Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Maxim Integrated Products Inc. (NASDAQ:MXIM) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Maxim Integrated Products Inc. (NASDAQ:MXIM) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WellCare Health Plans, Inc. (NYSE:WCG), Regions Financial Corporation (NYSE:RF), and Enel Americas S.A. (NYSE:ENIA) to gather more data points. Our calculations also showed that MXIM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the recent hedge fund action regarding Maxim Integrated Products Inc. (NASDAQ:MXIM).
What does smart money think about Maxim Integrated Products Inc. (NASDAQ:MXIM)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MXIM over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Point72 Asset Management held the most valuable stake in Maxim Integrated Products Inc. (NASDAQ:MXIM), which was worth $115.2 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $68 million worth of shares. Renaissance Technologies, AQR Capital Management, and GLG Partners 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 Prospector Partners allocated the biggest weight to Maxim Integrated Products Inc. (NASDAQ:MXIM), around 0.96% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, earmarking 0.61 percent of its 13F equity portfolio to MXIM.
Due to the fact that Maxim Integrated Products Inc. (NASDAQ:MXIM) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers who were dropping their entire stakes last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest stake of the 750 funds monitored by Insider Monkey, totaling an estimated $20.4 million in stock, and Tor Minesuk’s Mondrian Capital was right behind this move, as the fund said goodbye to about $4.6 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Maxim Integrated Products Inc. (NASDAQ:MXIM). These stocks are WellCare Health Plans, Inc. (NYSE:WCG), Regions Financial Corporation (NYSE:RF), Enel Americas S.A. (NYSE:ENIA), and Laboratory Corp. of America Holdings (NYSE:LH). This group of stocks’ market values are closest to MXIM’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1041 million. That figure was $505 million in MXIM’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 8 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately MXIM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MXIM investors were disappointed as the stock returned -30.3% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.