The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) from the perspective of those elite funds.
Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the fourth quarter of 2018. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as FS KKR Capital Corp. (NASDAQ:FSK), Barnes Group Inc. (NYSE:B), and Orbotech Ltd. (NASDAQ:ORBK) to gather more data points.
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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's review the recent hedge fund action surrounding Aerojet Rocketdyne Holdings Inc (NYSE:AJRD).
What have hedge funds been doing with Aerojet Rocketdyne Holdings Inc (NYSE:AJRD)?
Heading into the first quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in AJRD a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) was held by Steel Partners, which reported holding $147.3 million worth of stock at the end of September. It was followed by GAMCO Investors with a $141.4 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and D E Shaw.
Since Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) has witnessed a decline in interest from the smart money, it's safe to say that there is a sect of money managers who sold off their positions entirely heading into Q3. Intriguingly, Ken Griffin's Citadel Investment Group dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $6.4 million in stock, and Michael Platt and William Reeves's BlueCrest Capital Mgmt. was right behind this move, as the fund sold off about $1.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Aerojet Rocketdyne Holdings Inc (NYSE:AJRD). These stocks are FS KKR Capital Corp. (NYSE:FSK), Barnes Group Inc. (NYSE:B), Orbotech Ltd. (NASDAQ:ORBK), and Thor Industries, Inc. (NYSE:THO). All of these stocks' market caps match AJRD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FSK,20,173101,11 B,14,32255,1 ORBK,32,700155,5 THO,22,140201,-6 Average,22,261428,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $392 million in AJRD's case. Orbotech Ltd. (NASDAQ:ORBK) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 14 bullish hedge fund positions. Aerojet Rocketdyne Holdings Inc (NYSE:AJRD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AJRD wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); AJRD investors were disappointed as the stock returned -8.7% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.