Is CAE, Inc. (NYSE:CAE) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the latest market-moving information.
CAE, Inc. (NYSE:CAE) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. CAE was in 10 hedge funds’ portfolios at the end of the third quarter of 2018. There were 8 hedge funds in our database with CAE holdings at the end of the previous quarter. Our calculations also showed that CAE 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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to analyze the latest hedge fund action encompassing CAE, Inc. (NYSE:CAE).
How are hedge funds trading CAE, Inc. (NYSE:CAE)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAE over the last 13 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of CAE, Inc. (NYSE:CAE), with a stake worth $43.1 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $18.9 million. Marshall Wace LLP, AQR Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the largest position in CAE, Inc. (NYSE:CAE). Arrowstreet Capital had $18.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $13.2 million position during the quarter. The only other fund with a new position in the stock is Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s now review hedge fund activity in other stocks similar to CAE, Inc. (NYSE:CAE). We will take a look at athenahealth, Inc (NASDAQ:ATHN), Trinity Industries, Inc. (NYSE:TRN), Mattel, Inc. (NASDAQ:MAT), and United States Steel Corporation (NYSE:X). This group of stocks’ market valuations match CAE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATHN | 27 | 335405 | 9 |
| TRN | 33 | 1280684 | 2 |
| MAT | 16 | 838039 | 2 |
| X | 32 | 636345 | 2 |
| Average | 27 | 772618 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $773 million. That figure was $90 million in CAE’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Mattel, Inc. (NASDAQ:MAT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks CAE, Inc. (NYSE:CAE) is even less popular than MAT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
