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Hedge Funds Getting Bullish On PAE Incorporated (PAE)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of PAE Incorporated (NASDAQ:PAE).

PAE Incorporated (NASDAQ:PAE) has seen an increase in hedge fund sentiment lately. PAE was in 21 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with PAE positions at the end of the previous quarter. Our calculations also showed that PAE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 58 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.

Xiniya Earnings Call Transcript XNY 2014 Q3

New York Stock Exchange

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the new hedge fund action regarding PAE Incorporated (NASDAQ:PAE).

How have hedgies been trading PAE Incorporated (NASDAQ:PAE)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 75% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAE over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Simcoe Capital Management was the largest shareholder of PAE Incorporated (NASDAQ:PAE), with a stake worth $24.2 million reported as of the end of September. Trailing Simcoe Capital Management was Park West Asset Management, which amassed a stake valued at $16.2 million. Alyeska Investment Group, Chescapmanager LLC, and Omni Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Simcoe Capital Management allocated the biggest weight to PAE Incorporated (NASDAQ:PAE), around 7.41% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, designating 4.59 percent of its 13F equity portfolio to PAE.

As aggregate interest increased, key hedge funds were breaking ground themselves. Simcoe Capital Management, managed by Jeffrey Jacobowitz, assembled the most outsized position in PAE Incorporated (NASDAQ:PAE). Simcoe Capital Management had $24.2 million invested in the company at the end of the quarter. Peter S. Park’s Park West Asset Management also initiated a $16.2 million position during the quarter. The other funds with brand new PAE positions are Anand Parekh’s Alyeska Investment Group, Traci Lerner’s Chescapmanager LLC, and Steven Clark’s Omni Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as PAE Incorporated (NASDAQ:PAE) but similarly valued. We will take a look at BRP Group, Inc. (NASDAQ:BRP), OraSure Technologies, Inc. (NASDAQ:OSUR), GMS Inc. (NYSE:GMS), and Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW). All of these stocks’ market caps are closest to PAE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRP 2 9815 -6
OSUR 19 96477 4
GMS 16 73933 -1
AAWW 17 57222 2
Average 13.5 59362 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $124 million in PAE’s case. OraSure Technologies, Inc. (NASDAQ:OSUR) is the most popular stock in this table. On the other hand BRP Group, Inc. (NASDAQ:BRP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks PAE Incorporated (NASDAQ:PAE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on PAE as the stock returned 64.3% so far in Q2 (through June 17th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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