Crossroads Capital LLC, an investment management firm, recently released its first-quarter 2026 investor letter. The firm reported that its fund saw a 4.2% increase net of fees and expenses during the quarter. Since its inception, the fund has achieved a gross compounding rate of 21.3% and a net rate of 17.1%. As of the end of March 20206, the fund’s overall non-delta adjusted gross and net exposures were 114.1% and 73.3%, respectively.
The investor letter highlighted the impact of geopolitical tensions related to Trump’s foreign policy on the market, causing the S&P 500 to drop by approximately 4.3%. Despite this volatility, the firm expressed satisfaction with its portfolio performance, particularly as special situations began to accelerate.
One of the key investments mentioned in the letter was Merlin, Inc. (NASDAQ:MRLN), an aerospace and defense company known for its AI-powered autonomous flight software and systems. As of May 22, 2026, Merlin, Inc. (NASDAQ:MRLN) closed at $7.09 per share, with a one-month return of -37.81% and a 30.29% decline over the past 52 weeks. The company boasts a market capitalization of $684.36 million.
Crossroads Capital praised Merlin, Inc. (NASDAQ:MRLN) in its Q1 2026 investor letter, noting that the company was a significant contributor to the fund’s net gains during the quarter. The firm detailed its investment thesis in a research report, highlighting the potential for Merlin, Inc. (NASDAQ:MRLN) as a public company with limited float and insider ownership. The firm believes that the market has yet to fully appreciate the company’s value, positioning it as both a special situations and emerging compounder play.
While Merlin, Inc. (NASDAQ:MRLN) may not be among the 40 most popular stocks among hedge funds heading into 2026, Crossroads Capital sees significant potential in the company. However, the firm also recognizes other AI stocks with greater upside potential and lower downside risk. For investors seeking undervalued AI stocks with potential for growth, Crossroads Capital recommends exploring their report on the best short-term AI stock.
Overall, Crossroads Capital’s first-quarter 2026 investor letter reflects the firm’s confidence in its portfolio and investment strategies. The firm remains optimistic about the opportunities presented by special situations like Merlin, Inc. (NASDAQ:MRLN) and continues to seek out investments with strong growth potential in the evolving market landscape.
