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Were Hedge Funds Right About Flocking Into Rockwell Automation Inc. (ROK)?

Abigail Fisher

"Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Rockwell Automation Inc. (NYSE:ROK) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Rockwell Automation Inc. (NYSE:ROK) investors should pay attention to an increase in support from the world's most elite money managers of late. ROK was in 35 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 28 hedge funds in our database with ROK positions at the end of the previous quarter. Our calculations also showed that ROK isn't among the 30 most popular stocks among hedge funds.

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 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.

Mario Gabelli with cereal box

We're going to take a gander at the key hedge fund action regarding Rockwell Automation Inc. (NYSE:ROK).

What does the smart money think about Rockwell Automation Inc. (NYSE:ROK)?

Heading into the first quarter of 2019, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ROK over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ROK_mar2019

More specifically, Millennium Management was the largest shareholder of Rockwell Automation Inc. (NYSE:ROK), with a stake worth $155.6 million reported as of the end of September. Trailing Millennium Management was Two Sigma Advisors, which amassed a stake valued at $120.6 million. GLG Partners, Nitorum Capital, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, key money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Rockwell Automation Inc. (NYSE:ROK). Marshall Wace LLP had $24 million invested in the company at the end of the quarter. John Brennan's Sirios Capital Management also made a $23.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Gregg Moskowitz's Interval Partners, and Matthew Tewksbury's Stevens Capital Management.

Let's check out hedge fund activity in other stocks similar to Rockwell Automation Inc. (NYSE:ROK). These stocks are Stanley Black & Decker, Inc. (NYSE:SWK), Verisk Analytics, Inc. (NASDAQ:VRSK), TransDigm Group Incorporated (NYSE:TDG), and Verisign, Inc. (NASDAQ:VRSN). All of these stocks' market caps match ROK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWK,35,822108,8 VRSK,30,659725,7 TDG,47,4062096,-1 VRSN,30,4391236,1 Average,35.5,2483791,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $2484 million. That figure was $674 million in ROK's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Verisk Analytics, Inc. (NASDAQ:VRSK) is the least popular one with only 30 bullish hedge fund positions. Rockwell Automation Inc. (NYSE:ROK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. A handful of hedge funds were also right about betting on ROK as the stock returned 19.8% and outperformed the market as well.

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

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