We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Rexnord Corp (NYSE:RXN) in this article.
Rexnord Corp (NYSE:RXN) was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. RXN investors should be aware of an increase in support from the world’s most elite money managers recently. There were 22 hedge funds in our database with RXN positions at the end of the previous quarter. Our calculations also showed that RXN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the recent hedge fund action regarding Rexnord Corp (NYSE:RXN).
How are hedge funds trading Rexnord Corp (NYSE:RXN)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the third quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in RXN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Rexnord Corp (NYSE:RXN), with a stake worth $149.6 million reported as of the end of September. Trailing Impax Asset Management was Alyeska Investment Group, which amassed a stake valued at $47.5 million. Citadel Investment Group, Sandbar Asset Management, and Renaissance Technologies 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 Water Asset Management allocated the biggest weight to Rexnord Corp (NYSE:RXN), around 9.06% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 3.67 percent of its 13F equity portfolio to RXN.
Now, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Rexnord Corp (NYSE:RXN). Arrowstreet Capital had $8.7 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $3.6 million position during the quarter. The other funds with new positions in the stock are Sander Gerber’s Hudson Bay Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks similar to Rexnord Corp (NYSE:RXN). We will take a look at Viavi Solutions Inc (NASDAQ:VIAV), Plains GP Holdings LP (NYSE:PAGP), Insperity Inc (NYSE:NSP), and FirstCash, Inc. (NASDAQ:FCFS). All of these stocks’ market caps are closest to RXN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIAV | 37 | 420718 | 2 |
| PAGP | 26 | 366780 | 6 |
| NSP | 21 | 348461 | -7 |
| FCFS | 16 | 172761 | -3 |
| Average | 25 | 327180 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $334 million in RXN’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 16 bullish hedge fund positions. Rexnord Corp (NYSE:RXN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately RXN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RXN investors were disappointed as the stock returned -30.7% during the same time 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
