Crossroads Capital cites Merlin Labs as top Q1 2026 contributor amid market volatility
Crossroads Capital LLC reported a 4.2% net increase for its first-quarter 2026 fund, with Merlin Labs (NASDAQ: MRLN) identified as the primary driver. The investment firm capitalised on early trading volatility and structural supply constraints in the newly public company.
Crossroads Capital LLC published its first-quarter 2026 investor letter, reporting a 4.2% net increase for the fund after fees and expenses. The firm identified Merlin Labs (NASDAQ: MRLN) as its largest portfolio contributor, accounting for 40% of Q1 net gains. Merlin Labs, an aerospace and defence company specialising in AI-powered autonomous flight software, recently began trading via a SPAC in mid-March 2026.
Crossroads Capital cited a small public float and locked-up insiders as factors driving volatility and potential upside, classifying the stock within its special situations and emerging compounder buckets. The firm noted that the early price action was consistent with its thesis, highlighting that institutional investors have historically been trained to ignore names entering through the SPAC channel.
The investment management firm closed its short position on Merlin Labs common stock as rights converted, taking advantage of early-days volatility. Crossroads Capital stated that the repricing of the stock has barely started, reinforcing its classification of the company within its special situations bucket. The firm also noted that Merlin Labs is not currently on the list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026.
Broader market conditions in the quarter were characterised by geopolitical tensions linked to former President Trump’s foreign policy, which disrupted stable trends from 2025. These factors caused the S&P 500 to fall approximately 4.3% during the period. Despite this headwind, Crossroads Capital maintained that Q1 fundamentals aligned with broader trends and expressed satisfaction with its portfolio as special situations began to accelerate.
By late May 2026, Merlin Labs closed at $7.09 per share, with a market capitalisation of $684.36 million. The stock experienced a one-month return of -37.81% and lost 30.29% over the past 52 weeks leading up to late May 2026. Crossroads Capital’s overall non-delta adjusted gross and net exposures were 114.1% and 73.3%, respectively, by the end of March 2026.
