We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards CAE, Inc. (NYSE:CAE).
Is CAE, Inc. (NYSE:CAE) ready to rally soon? The best stock pickers are selling. The number of long hedge fund positions were trimmed by 1 recently. Our calculations also showed that CAE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CAE was in 10 hedge funds’ portfolios at the end of December. There were 11 hedge funds in our database with CAE holdings 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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
Andrew Sandler of Sandler Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the new hedge fund action encompassing CAE, Inc. (NYSE:CAE).
What does smart money think about CAE, Inc. (NYSE:CAE)?
At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CAE over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in CAE, Inc. (NYSE:CAE) was held by Arrowstreet Capital, which reported holding $46.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $38.4 million position. Other investors bullish on the company included Sandler Capital Management, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to CAE, Inc. (NYSE:CAE), around 2.84% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to CAE.
Because CAE, Inc. (NYSE:CAE) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management cut the largest investment of all the hedgies tracked by Insider Monkey, comprising about $1.7 million in stock. George Zweig, Shane Haas and Ravi Chander’s fund, Signition LP, also dumped its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CAE, Inc. (NYSE:CAE) but similarly valued. We will take a look at Chemed Corporation (NYSE:CHE), Perrigo Company (NYSE:PRGO), PRA Health Sciences Inc (NASDAQ:PRAH), and The Madison Square Garden Company (NYSE:MSG). This group of stocks’ market caps match CAE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHE | 22 | 399646 | -1 |
| PRGO | 27 | 237292 | 11 |
| PRAH | 38 | 362811 | 3 |
| MSG | 43 | 1919597 | -4 |
| Average | 32.5 | 729837 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $730 million. That figure was $138 million in CAE’s case. The Madison Square Garden Company (NYSE:MSG) is the most popular stock in this table. On the other hand Chemed Corporation (NYSE:CHE) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks CAE, Inc. (NYSE:CAE) is even less popular than CHE. Hedge funds dodged a bullet by taking a bearish stance towards CAE. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately CAE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CAE investors were disappointed as the stock returned -40.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
