Hedge Funds Piled Into Xilinx, Inc. (XLNX) Months Before The Merger Announcement

In this article you are going to find out whether hedge funds think Xilinx, Inc. (NASDAQ:XLNX) was a good investment before the company announced its merger with AMD. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Money managers were taking a bullish view towards Xilinx, Inc. (NASDAQ:XLNX) even before we started hearing rumors about AMD’s intentions about acquiring the company. The number of bullish hedge fund positions increased by 9 during the second quarter. Xilinx, Inc. (NASDAQ:XLNX) was in 47 hedge funds’ portfolios. The all time high for this statistics is 56. Our calculations also showed that XLNX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 58 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to check out the fresh hedge fund action surrounding Xilinx, Inc. (NASDAQ:XLNX).

How are hedge funds trading Xilinx, Inc. (NASDAQ:XLNX)?

At the end of June, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XLNX over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Matrix Capital Management was the largest shareholder of Xilinx, Inc. (NASDAQ:XLNX), with a stake worth $242.5 million reported as of the end of September. Trailing Matrix Capital Management was SoMa Equity Partners, which amassed a stake valued at $196.8 million. Polar Capital, Alkeon Capital Management, and Citadel Investment Group 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 SoMa Equity Partners allocated the biggest weight to Xilinx, Inc. (NASDAQ:XLNX), around 7.67% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 5.21 percent of its 13F equity portfolio to XLNX.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Renaissance Technologies, initiated the most valuable position in Xilinx, Inc. (NASDAQ:XLNX). Renaissance Technologies had $58.1 million invested in the company at the end of the quarter. Gavin Baker’s Atreides Management also made a $26 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Leon Shaulov’s Maplelane Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Xilinx, Inc. (NASDAQ:XLNX) but similarly valued. These stocks are TransDigm Group Incorporated (NYSE:TDG), McCormick & Company, Incorporated (NYSE:MKC), Verisign, Inc. (NASDAQ:VRSN), Moderna, Inc. (NASDAQ:MRNA), Motorola Solutions Inc (NYSE:MSI), V.F. Corporation (NYSE:VFC), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks’ market caps match XLNX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $2231 million. That figure was $1055 million in XLNX’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 27 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. Our overall hedge fund sentiment score for XLNX is 63.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on XLNX as the stock returned 19.2% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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