We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Trex Company, Inc. (NYSE:TREX).
Trex Company, Inc. (NYSE:TREX) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. Our calculations also showed that TREX isn't among the 30 most popular stocks among hedge funds.
If you'd ask most market participants, hedge funds are perceived as worthless, old investment tools of years past. While there are greater than 8000 funds in operation today, Our experts look at the elite of this club, around 750 funds. These investment experts control most of the hedge fund industry's total asset base, and by paying attention to their unrivaled stock picks, Insider Monkey has figured out a few investment strategies that have historically surpassed the broader indices. Insider Monkey's flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
We're going to review the latest hedge fund action regarding Trex Company, Inc. (NYSE:TREX).
Hedge fund activity in Trex Company, Inc. (NYSE:TREX)
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in TREX a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Trex Company, Inc. (NYSE:TREX) was held by Point72 Asset Management, which reported holding $21.3 million worth of stock at the end of March. It was followed by Broad Bay Capital with a $16.5 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and PEAK6 Capital Management.
Now, key hedge funds have jumped into Trex Company, Inc. (NYSE:TREX) headfirst. Point72 Asset Management, managed by Steve Cohen, created the biggest position in Trex Company, Inc. (NYSE:TREX). Point72 Asset Management had $21.3 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $5.3 million position during the quarter. The other funds with brand new TREX positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Paul Tudor Jones's Tudor Investment Corp, and Michael Gelband's ExodusPoint Capital.
Let's check out hedge fund activity in other stocks similar to Trex Company, Inc. (NYSE:TREX). These stocks are Dicks Sporting Goods Inc (NYSE:DKS), Black Stone Minerals LP (NYSE:BSM), Eldorado Resorts Inc (NASDAQ:ERI), and TreeHouse Foods Inc. (NYSE:THS). This group of stocks' market caps resemble TREX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DKS,20,303166,-2 BSM,5,9741,0 ERI,31,549919,2 THS,23,230182,4 Average,19.75,273252,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $82 million in TREX's case. Eldorado Resorts Inc (NASDAQ:ERI) 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 5 bullish hedge fund positions. Trex Company, Inc. (NYSE:TREX) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately TREX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TREX were disappointed as the stock returned -1.8% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.