Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CAE, Inc. (NYSE:CAE).
CAE, Inc. (NYSE:CAE) has experienced an increase in support from the world’s most elite money managers recently. CAE was in 11 hedge funds’ portfolios at the end of September. There were 10 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 (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the new hedge fund action surrounding CAE, Inc. (NYSE:CAE).
What does smart money think about CAE, Inc. (NYSE:CAE)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CAE over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in CAE, Inc. (NYSE:CAE) was held by Arrowstreet Capital, which reported holding $52.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $49.7 million position. Other investors bullish on the company included Sandler Capital Management, Two Sigma Advisors, and D E Shaw. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to CAE, Inc. (NYSE:CAE), around 1.82% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, designating 1.79 percent of its 13F equity portfolio to CAE.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in CAE, Inc. (NYSE:CAE). Millennium Management had $1.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.3 million position during the quarter.
Let’s now review hedge fund activity in other stocks similar to CAE, Inc. (NYSE:CAE). These stocks are SL Green Realty Corp (NYSE:SLG), LPL Financial Holdings Inc (NASDAQ:LPLA), LATAM Airlines Group S.A. (NYSE:LTM), and Monolithic Power Systems, Inc. (NASDAQ:MPWR). All of these stocks’ market caps are closest to CAE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLG | 24 | 440534 | 9 |
| LPLA | 34 | 1015258 | 3 |
| LTM | 9 | 28716 | 4 |
| MPWR | 22 | 192922 | -1 |
| Average | 22.25 | 419358 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $419 million. That figure was $145 million in CAE’s case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand LATAM Airlines Group S.A. (NYSE:LTM) is the least popular one with only 9 bullish hedge fund positions. CAE, Inc. (NYSE:CAE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CAE, though not to the same extent, as the stock returned 5.9% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
