Was The Smart Money Right About Crowding Into Sensata Technologies Holding plc (ST)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Sensata Technologies Holding plc (NYSE:ST) in this article.

Sensata Technologies Holding plc (NYSE:ST) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ST has experienced an increase in hedge fund interest recently. There were 26 hedge funds in our database with ST positions at the end of the first quarter. Our calculations also showed that ST isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest telecom companies to identify fast growing companies in various industries. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a look at the key hedge fund action regarding Sensata Technologies Holding plc (NYSE:ST).

How are hedge funds trading Sensata Technologies Holding plc (NYSE:ST)?

At Q2’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ST over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Generation Investment Management was the largest shareholder of Sensata Technologies Holding plc (NYSE:ST), with a stake worth $459.8 million reported as of the end of June. Trailing Generation Investment Management was Orbis Investment Management, which amassed a stake valued at $148.7 million. Diamond Hill Capital, Adage Capital Management, and Impax Asset Management 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 Generation Investment Management allocated the biggest weight to Sensata Technologies Holding plc (NYSE:ST), around 2.65% of its 13F portfolio. Appian Way Asset Management is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to ST.

As aggregate interest increased, specific money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the most outsized position in Sensata Technologies Holding plc (NYSE:ST). Adage Capital Management had $83.5 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $36.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Israel Englander’s Millennium Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sensata Technologies Holding plc (NYSE:ST) but similarly valued. These stocks are Santander Consumer USA Holdings Inc (NYSE:SC), Bunge Limited (NYSE:BG), Aluminum Corp. of China Limited (NYSE:ACH), Store Capital Corporation (NYSE:STOR), Schrodinger, Inc. (NASDAQ:SDGR), Healthcare Trust Of America Inc (NYSE:HTA), and Sibanye Stillwater Limited (NYSE:SBSW). This group of stocks’ market values are closest to ST’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $1073 million in ST’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 6 bullish hedge fund positions. Sensata Technologies Holding plc (NYSE:ST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ST is 83.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on ST as the stock returned 17.4% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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