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Trex Company, Inc. (TREX): Hedge Funds Are Cashing Out

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Trex Company, Inc. (NYSE:TREX) based on that data.

Trex Company, Inc. (NYSE:TREX) has seen a decrease in hedge fund sentiment in recent months. TREX was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with TREX holdings at the end of the previous quarter. Our calculations also showed that TREX 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Mark Kingdon - Kingdon Capital

Mark Kingdon of Kingdon Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Trex Company, Inc. (NYSE:TREX).

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

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TREX over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Broad Bay Capital held the most valuable stake in Trex Company, Inc. (NYSE:TREX), which was worth $43 million at the end of the third quarter. On the second spot was Kingdon Capital which amassed $14.9 million worth of shares. Columbus Circle Investors, Driehaus Capital, and Citadel Investment Group 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 Broad Bay Capital allocated the biggest weight to Trex Company, Inc. (NYSE:TREX), around 11.83% of its 13F portfolio. Kingdon Capital is also relatively very bullish on the stock, dishing out 2.73 percent of its 13F equity portfolio to TREX.

Since Trex Company, Inc. (NYSE:TREX) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of funds that slashed their full holdings in the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest investment of the 750 funds followed by Insider Monkey, worth close to $25.4 million in stock. Noam Gottesman’s fund, GLG Partners, also cut its stock, about $4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Trex Company, Inc. (NYSE:TREX) but similarly valued. We will take a look at Ares Capital Corporation (NASDAQ:ARCC), Sonoco Products Company (NYSE:SON), Credit Acceptance Corp. (NASDAQ:CACC), and Tallgrass Energy, LP (NYSE:TGE). This group of stocks’ market values resemble TREX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARCC 26 128884 4
SON 23 122325 -1
CACC 22 581386 -9
TGE 38 692822 7
Average 27.25 381354 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $93 million in TREX’s case. Tallgrass Energy, LP (NYSE:TGE) is the most popular stock in this table. On the other hand Credit Acceptance Corp. (NASDAQ:CACC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Trex Company, Inc. (NYSE:TREX) is even less popular than CACC. Hedge funds clearly dropped the ball on TREX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on TREX as the stock returned 54% so far in the second quarter and outperformed the market by an even larger margin.

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