The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Mellanox Technologies, Ltd. (NASDAQ:MLNX) and find out how it is affected by hedge funds’ moves.
Is Mellanox Technologies, Ltd. (NASDAQ:MLNX) a buy right now? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund positions retreated by 4 in recent months. Our calculations also showed that mlnx isn’t among the 30 most popular stocks among hedge funds.
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’ 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Matthew Halbower -Pentwater Capital
Let’s take a glance at the latest hedge fund action regarding Mellanox Technologies, Ltd. (NASDAQ:MLNX).
What does the smart money think about Mellanox Technologies, Ltd. (NASDAQ:MLNX)?
At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MLNX over the last 15 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Magnetar Capital held the most valuable stake in Mellanox Technologies, Ltd. (NASDAQ:MLNX), which was worth $225.9 million at the end of the first quarter. On the second spot was Pentwater Capital Management which amassed $185.8 million worth of shares. Moreover, Millennium Management, Renaissance Technologies, and Alpine Associates were also bullish on Mellanox Technologies, Ltd. (NASDAQ:MLNX), allocating a large percentage of their portfolios to this stock.
Since Mellanox Technologies, Ltd. (NASDAQ:MLNX) has witnessed falling interest from the smart money, it’s easy to see that there exists a select few hedgies that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Jeffrey Smith’s Starboard Value LP sold off the biggest investment of the 700 funds monitored by Insider Monkey, comprising close to $399.2 million in stock, and Richard Mashaal’s Rima Senvest Management was right behind this move, as the fund sold off about $131.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Mellanox Technologies, Ltd. (NASDAQ:MLNX) but similarly valued. We will take a look at FLIR Systems, Inc. (NASDAQ:FLIR), Commerce Bancshares, Inc. (NASDAQ:CBSH), Galapagos NV (NASDAQ:GLPG), and Hubbell Incorporated (NYSE:HUBB). This group of stocks’ market caps are closest to MLNX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FLIR | 32 | 537175 | 8 |
| CBSH | 13 | 48426 | 2 |
| GLPG | 16 | 131126 | 1 |
| HUBB | 21 | 357892 | -3 |
| Average | 20.5 | 268655 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $1455 million in MLNX’s case. FLIR Systems, Inc. (NASDAQ:FLIR) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Mellanox Technologies, Ltd. (NASDAQ:MLNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately MLNX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MLNX were disappointed as the stock returned -6.7% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
