Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Quanex Building Products Corporation (NYSE:NX) from the perspective of those elite funds.
Is Quanex Building Products Corporation (NYSE:NX) a buy, sell, or hold? Money managers are in a bullish mood. The number of bullish hedge fund bets inched up by 2 recently. Our calculations also showed that NX isn't among the 30 most popular stocks among hedge funds. NX was in 16 hedge funds' portfolios at the end of December. There were 14 hedge funds in our database with NX positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to view the key hedge fund action regarding Quanex Building Products Corporation (NYSE:NX).
How are hedge funds trading Quanex Building Products Corporation (NYSE:NX)?
Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NX over the last 14 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Royce & Associates, managed by Chuck Royce, holds the biggest position in Quanex Building Products Corporation (NYSE:NX). Royce & Associates has a $10.7 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions contain Israel Englander's Millennium Management, D. E. Shaw's D E Shaw and Paul Marshall and Ian Wace's Marshall Wace LLP.
As one would reasonably expect, key money managers have jumped into Quanex Building Products Corporation (NYSE:NX) headfirst. Element Capital Management, managed by Jeffrey Talpins, created the most outsized position in Quanex Building Products Corporation (NYSE:NX). Element Capital Management had $0.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $0.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser's Magnetar Capital, Benjamin A. Smith's Laurion Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Quanex Building Products Corporation (NYSE:NX) but similarly valued. We will take a look at Vivint Solar Inc (NYSE:VSLR), Construction Partners, Inc. (NASDAQ:ROAD), Health Insurance Innovations Inc (NASDAQ:HIIQ), and Och-Ziff Capital Management Group LLC (NYSE:OZM). This group of stocks' market valuations are closest to NX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VSLR,16,23369,6 ROAD,8,8991,-1 HIIQ,18,156364,1 OZM,9,82213,0 Average,12.75,67734,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $43 million in NX's case. Health Insurance Innovations Inc (NASDAQ:HIIQ) is the most popular stock in this table. On the other hand Construction Partners, Inc. (NASDAQ:ROAD) is the least popular one with only 8 bullish hedge fund positions. Quanex Building Products Corporation (NYSE:NX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on NX, though not to the same extent, as the stock returned 20.2% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.