Did Hedge Funds Drop The Ball On CAE, Inc. (CAE) ?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31. In this article, we will use that wealth of knowledge to determine whether or not CAE, Inc. (NYSE:CAE) makes for a good investment right now.

CAE, Inc. (NYSE:CAE) was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. CAE shareholders have witnessed an increase in support from the world’s most elite money managers lately. There were 9 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 40 percentage points since May 2014 through May 30, 2019 (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.

Noam Gottesman GLG Partners

Noam Gottesman, GLG Partners

Let’s take a gander at the fresh hedge fund action regarding CAE, Inc. (NYSE:CAE).

What does smart money think about CAE, Inc. (NYSE:CAE)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2018. On the other hand, there were a total of 8 hedge funds with a bullish position in CAE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CAE Positions

The largest stake in CAE, Inc. (NYSE:CAE) was held by Renaissance Technologies, which reported holding $45.9 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $16.8 million position. Other investors bullish on the company included D E Shaw, GLG Partners, and Two Sigma Advisors.

As aggregate interest increased, key money managers have jumped into CAE, Inc. (NYSE:CAE) headfirst. Sandler Capital Management, managed by Andrew Sandler, created the most outsized position in CAE, Inc. (NYSE:CAE). Sandler Capital Management had $8 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital also initiated a $0 million position during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CAE, Inc. (NYSE:CAE) but similarly valued. These stocks are GCI Liberty, Inc. (NASDAQ:GLIBA), Hexcel Corporation (NYSE:HXL), XPO Logistics Inc (NYSE:XPO), and National Instruments Corporation (NASDAQ:NATI). This group of stocks’ market valuations resemble CAE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLIBA 36 1903190 -1
HXL 25 176354 2
XPO 26 2005525 -18
NATI 28 604817 -1
Average 28.75 1172472 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1172 million. That figure was $118 million in CAE’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand Hexcel Corporation (NYSE:HXL) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks CAE, Inc. (NYSE:CAE) is even less popular than HXL. Hedge funds clearly dropped the ball on CAE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on CAE as the stock returned 19.8% during the same period and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.