Rockwell Automation Inc. (ROK): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Rockwell Automation Inc. (NYSE:ROK).

Rockwell Automation Inc. (NYSE:ROK) was in 37 hedge funds’ portfolios at the end of March. ROK investors should pay attention to a decrease in hedge fund interest recently. There were 39 hedge funds in our database with ROK positions at the end of the previous quarter. Our calculations also showed that ROK 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 51 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.

Tom Gayner of Markel Gayner Asset Management

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 trades like this one. 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. Now let’s take a look at the fresh hedge fund action regarding Rockwell Automation Inc. (NYSE:ROK).

How are hedge funds trading Rockwell Automation Inc. (NYSE:ROK)?

At the end of the first quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ROK over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Impax Asset Management held the most valuable stake in Rockwell Automation Inc. (NYSE:ROK), which was worth $65.6 million at the end of the third quarter. On the second spot was Nitorum Capital which amassed $35.7 million worth of shares. GAMCO Investors, Fisher Asset Management, and Markel Gayner Asset Management 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 Heathbridge Capital Management allocated the biggest weight to Rockwell Automation Inc. (NYSE:ROK), around 5.5% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 2.77 percent of its 13F equity portfolio to ROK.

Due to the fact that Rockwell Automation Inc. (NYSE:ROK) has experienced declining sentiment from the smart money, we can see that there is a sect of funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Renaissance Technologies dumped the biggest position of all the hedgies monitored by Insider Monkey, comprising close to $44.3 million in stock, and Andrew Sandler’s Sandler Capital Management was right behind this move, as the fund dropped about $9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Rockwell Automation Inc. (NYSE:ROK) but similarly valued. We will take a look at Fortinet Inc (NASDAQ:FTNT), Nokia Corporation (NYSE:NOK), Dollar Tree, Inc. (NASDAQ:DLTR), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks’ market caps are closest to ROK’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1104 million. That figure was $335 million in ROK’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 23 bullish hedge fund positions. Rockwell Automation Inc. (NYSE:ROK) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on ROK as the stock returned 44% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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