Were Hedge Funds Right About Selling Xilinx, Inc. (XLNX)?

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.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Xilinx, Inc. (NASDAQ:XLNX) makes for a good investment right now.

Is Xilinx, Inc. (NASDAQ:XLNX) a worthy investment now? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that XLNX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 S&P 500 ETFs by 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.

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. Keeping this in mind let’s take a look at the new hedge fund action encompassing Xilinx, Inc. (NASDAQ:XLNX).

Hedge fund activity in Xilinx, Inc. (NASDAQ:XLNX)

At Q4’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in XLNX a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the number one position in Xilinx, Inc. (NASDAQ:XLNX). AQR Capital Management has a $211.7 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, led by Panayotis Takis Sparaggis, holding a $143 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass John Overdeck and David Siegel’s Two Sigma Advisors, Steve Cohen’s Point72 Asset Management and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Xilinx, Inc. (NASDAQ:XLNX), around 4.95% of its 13F portfolio. Boardman Bay Capital Management is also relatively very bullish on the stock, earmarking 3.9 percent of its 13F equity portfolio to XLNX.

Judging by the fact that Xilinx, Inc. (NASDAQ:XLNX) has faced declining sentiment from the smart money, logic holds that there exists a select few funds who were dropping their full holdings heading into Q4. Intriguingly, Joel Greenblatt’s Gotham Asset Management dumped the biggest position of the 750 funds monitored by Insider Monkey, totaling about $27.8 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund cut about $7.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Xilinx, Inc. (NASDAQ:XLNX) but similarly valued. These stocks are Verisk Analytics, Inc. (NASDAQ:VRSK), Aptiv PLC (NYSE:APTV), Telefonica Brasil SA (NYSE:VIV), and Hormel Foods Corporation (NYSE:HRL). All of these stocks’ market caps resemble XLNX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $1026 million in XLNX’s case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 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. 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 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately XLNX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on XLNX were disappointed as the stock returned -24.3% 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 many of these stocks already outperformed the market so far this year.

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