This Metric Says You Are Smart to Sell Mellanox Technologies, Ltd. (MLNX)

Mellanox Technologies, Ltd. (NASDAQ:MLNX) was in 17 hedge funds’ portfolio at the end of the first quarter of 2013. MLNX has seen a decrease in support from the world’s most elite money managers of late. There were 26 hedge funds in our database with MLNX positions at the end of the previous quarter.

To most traders, hedge funds are perceived as unimportant, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open at present, we hone in on the bigwigs of this group, about 450 funds. It is estimated that this group oversees most of all hedge funds’ total capital, and by paying attention to their best investments, we have unearthed a number of investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as beneficial, optimistic insider trading activity is another way to break down the financial markets. As the old adage goes: there are a number of motivations for a bullish insider to sell shares of his or her company, but just one, very clear reason why they would behave bullishly. Several academic studies have demonstrated the market-beating potential of this method if “monkeys” understand where to look (learn more here).

Now, we’re going to take a gander at the recent action surrounding Mellanox Technologies, Ltd. (NASDAQ:MLNX).

How are hedge funds trading Mellanox Technologies, Ltd. (NASDAQ:MLNX)?

In preparation for this quarter, a total of 17 of the hedge funds we track were long in this stock, a change of -35% from the first quarter. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly.

When looking at the hedgies we track, Philippe Laffont’s Coatue Management had the biggest position in Mellanox Technologies, Ltd. (NASDAQ:MLNX), worth close to $56.6 million, accounting for 0.7% of its total 13F portfolio. The second largest stake is held by Rob Butts and Josh Clark of Southpoint Capital Advisors, with a $38.7 million position; 2.5% of its 13F portfolio is allocated to the company. Remaining hedgies that hold long positions include Charles Clough’s Clough Capital Partners, Donald Chiboucis’s Columbus Circle Investors and Jim Simons’s Renaissance Technologies.

Due to the fact that Mellanox Technologies, Ltd. (NASDAQ:MLNX) has experienced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that decided to sell off their full holdings in Q1. Interestingly, Chase Coleman and Feroz Dewan’s Tiger Global Management LLC said goodbye to the largest investment of the 450+ funds we track, comprising about $41.6 million in stock.. Richard Driehaus’s fund, Driehaus Capital, also dumped its stock, about $8.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds in Q1.

What do corporate executives and insiders think about Mellanox Technologies, Ltd. (NASDAQ:MLNX)?

Insider purchases made by high-level executives is particularly usable when the company in question has seen transactions within the past 180 days. Over the latest six-month time period, Mellanox Technologies, Ltd. (NASDAQ:MLNX) has seen zero unique insiders buying, and 8 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to Mellanox Technologies, Ltd. (NASDAQ:MLNX). These stocks are Cypress Semiconductor Corporation (NASDAQ:CY), Advanced Micro Devices, Inc. (NYSE:AMD), Atmel Corporation (NASDAQ:ATML), Vishay Intertechnology (NYSE:VSH), and Cavium Inc (NASDAQ:CAVM). This group of stocks are in the semiconductor – broad line industry and their market caps are closest to MLNX’s market cap.

With the returns shown by the aforementioned studies, retail investors must always pay attention to hedge fund and insider trading activity, and Mellanox Technologies, Ltd. (NASDAQ:MLNX) shareholders fit into this picture quite nicely.

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