Did Hedge Funds Drop The Ball On Aerojet Rocketdyne Holdings Inc (AJRD) ?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) changed recently.

Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) was in 15 hedge funds’ portfolios at the end of the first quarter of 2019. AJRD has experienced a decrease in hedge fund interest in recent months. There were 19 hedge funds in our database with AJRD holdings at the end of the previous quarter. Our calculations also showed that ajrd 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 40 percentage points since May 2014 through May 30, 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.

Warren Lichtenstein Steel Partners

Let’s take a gander at the latest hedge fund action encompassing Aerojet Rocketdyne Holdings Inc (NYSE:AJRD).

What does smart money think about Aerojet Rocketdyne Holdings Inc (NYSE:AJRD)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in AJRD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with AJRD Positions

Among these funds, Steel Partners held the most valuable stake in Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), which was worth $148.5 million at the end of the first quarter. On the second spot was GAMCO Investors which amassed $140.5 million worth of shares. Moreover, Renaissance Technologies, Arrowstreet Capital, and D E Shaw were also bullish on Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), allocating a large percentage of their portfolios to this stock.

Seeing as Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) has experienced a decline in interest from the smart money, it’s easy to see that there were a few fund managers who were dropping their entire stakes heading into Q3. Interestingly, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors dumped the largest position of the 700 funds followed by Insider Monkey, totaling an estimated $44.1 million in call options. Sander Gerber’s fund, Hudson Bay Capital Management, also sold off its call options, about $3.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Aerojet Rocketdyne Holdings Inc (NYSE:AJRD). We will take a look at Cantel Medical Corp. (NYSE:CMD), AllianceBernstein Holding LP (NYSE:AB), Brandywine Realty Trust (NYSE:BDN), and Box, Inc. (NYSE:BOX). All of these stocks’ market caps are similar to AJRD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMD 18 143681 5
AB 8 20311 1
BDN 15 129274 -2
BOX 32 472060 8
Average 18.25 191332 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $387 million in AJRD’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 8 bullish hedge fund positions. Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on AJRD as the stock returned 16.9% during the same time frame and outperformed the market by an even larger margin.

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