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Did Hedge Funds Drop The Ball On Trex Company, Inc. (TREX) ?

Does Trex Company, Inc. (NYSE:TREX) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Trex Company, Inc. (NYSE:TREX) investors should be aware of a decrease in enthusiasm from smart money recently. Our calculations also showed that TREX isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

TREX_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action surrounding Trex Company, Inc. (NYSE:TREX).

What have hedge funds been doing with Trex Company, Inc. (NYSE:TREX)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in TREX over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Steven Cohen

Among these funds, Millennium Management held the most valuable stake in Trex Company, Inc. (NYSE:TREX), which was worth $57 million at the end of the second quarter. On the second spot was Balyasny Asset Management which amassed $32.6 million worth of shares. Moreover, SG Capital Management, Point72 Asset Management, and Arrowgrass Capital Partners were also bullish on Trex Company, Inc. (NYSE:TREX), allocating a large percentage of their portfolios to this stock.

Since Trex Company, Inc. (NYSE:TREX) has experienced falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings in the second quarter. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $2.3 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dropped its stock, about $1.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Trex Company, Inc. (NYSE:TREX) but similarly valued. These stocks are Repligen Corporation (NASDAQ:RGEN), Service Properties Trust (NASDAQ:HPT), First Financial Bankshares Inc (NASDAQ:FFIN), and Tribune Media Company (NYSE:TRCO). All of these stocks’ market caps match TREX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RGEN 22 167527 2
HPT 13 58292 2
FFIN 12 30841 -1
TRCO 31 1246968 3
Average 19.5 375907 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $185 million in TREX’s case. Tribune Media Company (NYSE:TRCO) is the most popular stock in this table. On the other hand First Financial Bankshares Inc (NASDAQ:FFIN) is the least popular one with only 12 bullish hedge fund positions. Trex Company, Inc. (NYSE:TREX) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TREX as the stock returned 26.8% during the same time frame and outperformed the market by an even larger margin.

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

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