Did Hedge Funds Make The Right Call On Rexnord Corp (RXN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtRexnord Corp (NYSE:RXN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Rexnord Corp (NYSE:RXN) going to take off soon? The smart money was taking a bearish view. The number of long hedge fund bets went down by 6 in recent months. Our calculations also showed that RXN 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). RXN was in 19 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with RXN positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are numerous tools stock market investors can use to analyze their holdings. A pair of the most useful tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can beat the S&P 500 by a very impressive amount (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to view the new hedge fund action encompassing Rexnord Corp (NYSE:RXN).

What have hedge funds been doing with Rexnord Corp (NYSE:RXN)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RXN over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RXN A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Ian Simm’s Impax Asset Management has the number one position in Rexnord Corp (NYSE:RXN), worth close to $110.9 million, corresponding to 1.5% of its total 13F portfolio. On Impax Asset Management’s heels is Anand Parekh of Alyeska Investment Group, with a $35.9 million position; 0.7% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Ken Griffin’s Citadel Investment Group, Clint Murray’s Lodge Hill Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Rexnord Corp (NYSE:RXN), around 5.54% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 1.48 percent of its 13F equity portfolio to RXN.

Seeing as Rexnord Corp (NYSE:RXN) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that elected to cut their entire stakes by the end of the first quarter. Intriguingly, Michael Cowley’s Sandbar Asset Management dumped the largest investment of the 750 funds monitored by Insider Monkey, worth an estimated $16.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $8.7 million worth. These transactions are important to note, as total hedge fund interest was cut by 6 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Rexnord Corp (NYSE:RXN). We will take a look at Simpson Manufacturing Co, Inc. (NYSE:SSD), New Relic Inc (NYSE:NEWR), WD-40 Company (NASDAQ:WDFC), and Livongo Health, Inc. (NASDAQ:LVGO). This group of stocks’ market caps are similar to RXN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SSD 26 197022 2
NEWR 31 809963 -13
WDFC 17 199539 0
LVGO 17 82549 -1
Average 22.75 322268 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $213 million in RXN’s case. New Relic Inc (NYSE:NEWR) is the most popular stock in this table. On the other hand WD-40 Company (NASDAQ:WDFC) is the least popular one with only 17 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 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on RXN as the stock returned 35.4% since the end of March and outperformed the market by an even larger margin.

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