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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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Vectrus Inc (NYSE:VEC).
Vectrus Inc (NYSE:VEC) was in 15 hedge funds' portfolios at the end of the first quarter of 2020. VEC investors should pay attention to an increase in hedge fund interest of late. There were 13 hedge funds in our database with VEC positions at the end of the previous quarter. Our calculations also showed that VEC 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.
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 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. 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.
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Donald Sussman of Paloma Partners[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a gander at the recent hedge fund action regarding Vectrus Inc (NYSE:VEC).
What does smart money think about Vectrus Inc (NYSE:VEC)?
Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in VEC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Royce & Associates held the most valuable stake in Vectrus Inc (NYSE:VEC), which was worth $13.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $13.5 million worth of shares. Arrowstreet Capital, Driehaus Capital, and Renaissance Technologies 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 Factorial Partners allocated the biggest weight to Vectrus Inc (NYSE:VEC), around 1.22% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to VEC.
As aggregate interest increased, some big names were leading the bulls' herd. Simcoe Capital Management, managed by Jeffrey Jacobowitz, initiated the largest position in Vectrus Inc (NYSE:VEC). Simcoe Capital Management had $1.8 million invested in the company at the end of the quarter. Phil Frohlich's Prescott Group Capital Management also initiated a $1.2 million position during the quarter. The only other fund with a brand new VEC position is Bernard Horn's Polaris Capital Management.
Let's also examine hedge fund activity in other stocks similar to Vectrus Inc (NYSE:VEC). We will take a look at Kala Pharmaceuticals, Inc. (NASDAQ:KALA), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), Hawaiian Holdings, Inc. (NASDAQ:HA), and Univest Financial Corporation (NASDAQ:UVSP). All of these stocks' market caps are similar to VEC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KALA,18,183294,8 BCSF,8,13111,0 HA,19,45639,4 UVSP,11,55114,-2 Average,14,74290,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $55 million in VEC's case. Hawaiian Holdings, Inc. (NASDAQ:HA) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 8 bullish hedge fund positions. Vectrus Inc (NYSE:VEC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately VEC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VEC were disappointed as the stock returned 15% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.