A Look at Hedge Funds’ Favorite Defense Stocks Amid U.S. Decision to Lift Arms Ban on Vietnam

President Barack Obama announced Monday that the United States is lifting a long-lasting ban on the sale of military equipment to Vietnam. The U.S. president arrived in Hanoi on Sunday for a three-day visit as part of his “pivot” towards Asia, one of the Obama Administration’s central foreign policy initiatives. The historic announcement was made at a joint press conference with Vietnam’s President Tran Dai Quang, with the deal said to represent a sign of normalizing and warming relations between the United States and the nation’s one-time enemy. Barack Obama dismissed insinuations that the deal was aimed at opposing China’s fast-growing military strength in the region, saying that “The decision to lift the ban was not based on concerns regarding China or any other considerations. It was based on our desire to complete what has been a lengthy process of moving towards normalization with Vietnam”. The decision to lift the decades-long ban on the sale of military equipment to Vietnam may serve as a positive catalyst for U.S. arms sales, so Insider Monkey decided to lay out a list of most favored defense stocks within the hedge fund industry.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5. Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD)

– Investors with long position as of March 31: 19

– Aggregate value of investors’ holdings as of March 31: $282.55 Million

The hedge fund sentiment towards Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) declined significantly during the first quarter of 2016, as the number of funds from our system with stakes in the company dropped to 19 from 25 quarter-over-quarter. The aggregate value of hedge funds’ holdings in the manufacturer of aerospace and defense products shrunk to $282.55 million from $285.14 million and those 19 funds amassed nearly 27% of Aerojet Rocketdyne’s outstanding shares at the end of March. The maker of rocket propulsion systems posted a net income of $5.1 million for the first quarter, after incurring a net loss of $3.3 million in the same quarter of 2015. Aerojet Rocketdyne’s net sales for the quarter reached $356.9 million, up from $323.0 million recorded a year ago. Earlier this month, analysts at Oppenheimer said they anticipate the company to continue growing margins and generate increased free cash flow, partially owing to ongoing integration and cost-saving initiatives. Shares of Aerojet Rocketdyne are up 8%, thus far in 2016. Jim Simons’ Renaissance Technologies owns 1.28 million shares of Aerojet Rocketdyne Holdings Inc. (NYSE:AJRD) as of March 31.