You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Rexnord Corp (NYSE:RXN) has seen an increase in support from the world’s most elite money managers lately. RXN was in 19 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 15 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.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
We’re going to analyze the recent hedge fund action encompassing Rexnord Corp (NYSE:RXN).
How are hedge funds trading Rexnord Corp (NYSE:RXN)?
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RXN over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Impax Asset Management, managed by Ian Simm, holds the largest position in Rexnord Corp (NYSE:RXN). Impax Asset Management has a $87.1 million position in the stock, comprising 1.4% of its 13F portfolio. On Impax Asset Management’s heels is Israel Englander of Millennium Management, with a $13.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that are bullish encompass D. E. Shaw’s D E Shaw, Nick Niell’s Arrowgrass Capital Partners and Matt Diserio and Disque Deane Jr.’s Water Asset Management.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Arrowgrass Capital Partners, managed by Nick Niell, initiated the largest position in Rexnord Corp (NYSE:RXN). Arrowgrass Capital Partners had $3.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $2.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Rexnord Corp (NYSE:RXN) but similarly valued. These stocks are The Geo Group, Inc. (NYSE:GEO), Pampa Energia S.A. (NYSE:PAM), Range Resources Corp. (NYSE:RRC), and Premier Inc (NASDAQ:PINC). This group of stocks’ market valuations are closest to RXN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GEO | 18 | 95266 | 1 |
| PAM | 15 | 295211 | 0 |
| RRC | 31 | 724194 | 2 |
| PINC | 18 | 181570 | -3 |
| Average | 20.5 | 324060 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $133 million in RXN’s case. Range Resources Corp. (NYSE:RRC) is the most popular stock in this table. On the other hand Pampa Energia S.A. (NYSE:PAM) is the least popular one with only 15 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on RXN, though not to the same extent, as the stock returned 22.4% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
