It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 7% during October and average hedge fund losing about 3%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by about 4 percentage points during the first half of Q4, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Sensient Technologies Corporation (NYSE:SXT) during the quarter below.
Is Sensient Technologies Corporation (NYSE:SXT) a great investment today? Investors who are in the know are in a bearish mood. The number of long hedge fund positions went down by 3 lately. Our calculations also showed that sxt isn’t among the 30 most popular stocks among hedge funds. SXT was in 11 hedge funds’ portfolios at the end of September. There were 14 hedge funds in our database with SXT holdings at the end of the previous quarter.
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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s analyze the key hedge fund action encompassing Sensient Technologies Corporation (NYSE:SXT).
Hedge fund activity in Sensient Technologies Corporation (NYSE:SXT)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in SXT heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Sensient Technologies Corporation (NYSE:SXT) was held by GAMCO Investors, which reported holding $47.9 million worth of stock at the end of September. It was followed by Echo Street Capital Management with a $9.5 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and D E Shaw.
Judging by the fact that Sensient Technologies Corporation (NYSE:SXT) has witnessed bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Jim Simons’s Renaissance Technologies sold off the largest investment of the 700 funds tracked by Insider Monkey, worth an estimated $7 million in stock, and Ilan Assouline’s Circle Road Advisors was right behind this move, as the fund sold off about $1.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to Sensient Technologies Corporation (NYSE:SXT). These stocks are Rexnord Corp (NYSE:RXN), Hilton Grand Vacations Inc. (NYSE:HGV), Smartsheet Inc. (NYSE:SMAR), and Spirit Airlines Incorporated (NYSE:SAVE). This group of stocks’ market values are closest to SXT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RXN | 15 | 169987 | -1 |
| HGV | 27 | 587168 | 4 |
| SMAR | 11 | 102729 | 0 |
| SAVE | 20 | 374621 | 3 |
| Average | 18.25 | 308626 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $309 million. That figure was $74 million in SXT’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Smartsheet Inc. (NYSE:SMAR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Sensient Technologies Corporation (NYSE:SXT) is even less popular than SMAR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
