Hedge Funds Are Selling REX American Resources Corp (REX)

In this article you are going to find out whether hedge funds think REX American Resources Corp (NYSE:REX) is a good investment right now. 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.

REX American Resources Corp (NYSE:REX) investors should be aware of a decrease in support from the world’s most elite money managers of late. REX was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 8 hedge funds in our database with REX holdings at the end of the previous quarter. Our calculations also showed that REX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing REX American Resources Corp (NYSE:REX).

Hedge fund activity in REX American Resources Corp (NYSE:REX)

At Q1’s end, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in REX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in REX American Resources Corp (NYSE:REX), which was worth $22.4 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $0.9 million worth of shares. AQR Capital Management, Portolan Capital Management, and Royce & Associates 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 Portolan Capital Management allocated the biggest weight to REX American Resources Corp (NYSE:REX), around 0.07% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to REX.

Since REX American Resources Corp (NYSE:REX) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of fund managers that elected to cut their positions entirely by the end of the first quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $0.8 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund dumped about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to REX American Resources Corp (NYSE:REX). We will take a look at Tenneco Inc (NYSE:TEN), Tsakos Energy Navigation Ltd. (NYSE:TNP), Benefitfocus Inc (NASDAQ:BNFT), and GasLog Ltd (NYSE:GLOG). This group of stocks’ market valuations are similar to REX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $25 million in REX’s case. Tenneco Inc (NYSE:TEN) is the most popular stock in this table. On the other hand Tsakos Energy Navigation Ltd. (NYSE:TNP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks REX American Resources Corp (NYSE:REX) is even less popular than TNP. Hedge funds clearly dropped the ball on REX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on REX as the stock returned 52.3% so far in the second quarter and outperformed the market by an even larger margin.

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