2Q15 Hedge Fund Activity in Norfolk Southern
Key hedge funds trim exposure to Norfolk
In the previous part of this series, we saw how institutional investors reduced their positions in Norfolk in 2Q15. Now let’s move on to the trades executed by key hedge funds in Norfolk Southern (NSC) in 2Q15. We’ll also take a look at the psychology behind these trades.
Examining investment decisions made by hedge funds can be useful for investors who are trying to piggyback. Most of the hedge funds that had significant exposure to Norfolk either liquidated their stakes completely or lowered their exposure to Norfolk. This was most likely triggered by the challenging outlook for railroads in the future. Due to the weak outlook for coal and the expected drop in fuel surcharges, railroads are expected to encounter revenue and earnings pressure in the near to medium term.
Daniel Bubis’s Tetrem Capital Management, which focuses on value stocks, exited its $44.4 million position in Norfolk Southern with the sale of 341,000 shares. This managed hedge fund has been liquidating its stake since 4Q14. At its highest, the stake was valued at $78 million in August 2014.
Passport Capital, a San Francisco–based hedge fund that utilizes a top-down approach for its investment choices, also eliminated its $16.6 million exposure to Norfolk.
Legg Mason Capital Management also liquidated its entire stake in the Class I railroad operator. Other top hedge funds, AQR Capital, Adage Capital, and Skylands, reduced their allocations to Norfolk.
The challenging environment for the industry most likely played a role in these decisions. In contrast, quant hedge fund Two Sigma Advisers initiated a new position in Norfolk Southern worth ~$44.6 million in 2Q15.
ETFs with sizable investments in railroads
Investors seeking to gain exposure to railroads such as Norfolk Southern, Union Pacific (UNP), CSX (CSX), Kansas City Southern (KSU), and Genesee & Wyoming (GWR) can consider pooled investment vehicles such as the iShares Transportation Average ETF (IYT) and the SPDR Transportation ETF (XTN). IYT has 25.0% of its portfolio in railroads, while XTN has 12.4%.
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