We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Rexnord Corp (NYSE:RXN).
Is Rexnord Corp (NYSE:RXN) undervalued? Investors who are in the know are taking a pessimistic view. The number of bullish hedge fund positions retreated by 1 in recent months. Our calculations also showed that RXN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RXN was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. There were 20 hedge funds in our database with RXN positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action surrounding Rexnord Corp (NYSE:RXN).
Hedge fund activity in Rexnord Corp (NYSE:RXN)
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in RXN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of Rexnord Corp (NYSE:RXN), with a stake worth $124.1 million reported as of the end of September. Trailing Impax Asset Management was Alyeska Investment Group, which amassed a stake valued at $28.3 million. Citadel Investment Group, Renaissance Technologies, and D E Shaw 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 4.82% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 1.62 percent of its 13F equity portfolio to RXN.
Judging by the fact that Rexnord Corp (NYSE:RXN) has witnessed falling interest from hedge fund managers, we can see that there was a specific group of funds who were dropping their entire stakes last quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $11.1 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dropped its stock, about $6.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Rexnord Corp (NYSE:RXN). We will take a look at Verint Systems Inc. (NASDAQ:VRNT), FireEye Inc (NASDAQ:FEYE), Coca-Cola Consolidated, Inc. (NASDAQ:COKE), and QTS Realty Trust Inc (NYSE:QTS). This group of stocks’ market valuations match RXN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRNT | 21 | 268774 | -2 |
| FEYE | 29 | 255297 | 0 |
| COKE | 14 | 20018 | 3 |
| QTS | 24 | 382800 | 1 |
| Average | 22 | 231722 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $214 million in RXN’s case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand Coca-Cola Consolidated, Inc. (NASDAQ:COKE) is the least popular one with only 14 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RXN as the stock returned 16.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
