How do we determine whether Rexnord Corporation (NYSE:RXN) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Rexnord Corporation (NYSE:RXN) has experienced a decrease in hedge fund interest of late. Our calculations also showed that RXN isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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.
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 glance at the latest hedge fund action encompassing Rexnord Corporation (NYSE:RXN).
How are hedge funds trading Rexnord Corporation (NYSE:RXN)?
Heading into the third quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RXN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Rexnord Corporation (NYSE:RXN), with a stake worth $129.6 million reported as of the end of March. Trailing Impax Asset Management was Marshall Wace LLP, which amassed a stake valued at $16 million. Millennium Management, Interval Partners, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Rexnord Corporation (NYSE:RXN) has faced bearish sentiment from hedge fund managers, logic holds that there were a few funds that elected to cut their full holdings by the end of the second quarter. Interestingly, Nick Niell’s Arrowgrass Capital Partners dropped the largest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $3.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $2.9 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Rexnord Corporation (NYSE:RXN) but similarly valued. We will take a look at Allegheny Technologies Incorporated (NYSE:ATI), Fox Factory Holding Corp (NASDAQ:FOXF), The Descartes Systems Group Inc (NASDAQ:DSGX), and Black Stone Minerals LP (NYSE:BSM). This group of stocks’ market values are closest to RXN’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $210 million in RXN’s case. Allegheny Technologies Incorporated (NYSE:ATI) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 7 bullish hedge fund positions. Rexnord Corporation (NYSE:RXN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately RXN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RXN were disappointed as the stock returned -10.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.