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 VSE Corporation (NASDAQ:VSEC).
Is VSE Corporation (NASDAQ:VSEC) an exceptional investment today? The best stock pickers are becoming less confident. The number of long hedge fund bets decreased by 1 in recent months. Our calculations also showed that VSEC 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). VSEC was in 4 hedge funds' portfolios at the end of the first quarter of 2020. There were 5 hedge funds in our database with VSEC positions at the end of the previous quarter. 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 44 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.
[caption id="attachment_365194" align="aligncenter" width="394"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a look at the latest hedge fund action encompassing VSE Corporation (NASDAQ:VSEC).
Hedge fund activity in VSE Corporation (NASDAQ:VSEC)
Heading into the second quarter of 2020, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in VSEC a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital has the most valuable position in VSE Corporation (NASDAQ:VSEC), worth close to $0.5 million, accounting for less than 0.1%% of its total 13F portfolio. On Arrowstreet Capital's heels of Renaissance Technologies, with a $0.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Ken Griffin's Citadel Investment Group, D. E. Shaw's D E Shaw and . In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to VSE Corporation (NASDAQ:VSEC), around 0.0015% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0005 percent of its 13F equity portfolio to VSEC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zebra Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified VSEC as a viable investment and initiated a position in the stock.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as VSE Corporation (NASDAQ:VSEC) but similarly valued. These stocks are Fluidigm Corporation (NASDAQ:FLDM), Galiano Gold Inc (NYSE:AKG), Bioceres Crop Solutions Corp. (NYSE:BIOX), and Marinus Pharmaceuticals Inc (NASDAQ:MRNS). This group of stocks' market caps are closest to VSEC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLDM,16,42366,-2 AKG,4,24151,-1 BIOX,3,343,0 MRNS,12,52863,-2 Average,8.75,29931,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $2 million in VSEC's case. Fluidigm Corporation (NASDAQ:FLDM) is the most popular stock in this table. On the other hand Bioceres Crop Solutions Corp. (NYSE:BIOX) is the least popular one with only 3 bullish hedge fund positions. VSE Corporation (NASDAQ:VSEC) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on VSEC as the stock returned 59.4% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.