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Were Hedge Funds Right About Dumping Gentherm Inc (THRM)?

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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Gentherm Inc (NASDAQ:THRM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Gentherm Inc (NASDAQ:THRM) was in 11 hedge funds' portfolios at the end of March. THRM shareholders have witnessed a decrease in hedge fund interest of late. There were 17 hedge funds in our database with THRM holdings at the end of the previous quarter. Our calculations also showed that THRM 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.

Today there are a multitude of gauges stock traders use to appraise stocks. A couple of the less known gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outpace the market by a solid amount (see the details here).

[caption id="attachment_256989" align="aligncenter" width="392"]

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. 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 analyze the latest hedge fund action encompassing Gentherm Inc (NASDAQ:THRM).

How have hedgies been trading Gentherm Inc (NASDAQ:THRM)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the fourth quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in THRM a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Gentherm Inc (NASDAQ:THRM) was held by Trigran Investments, which reported holding $35.4 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $7.5 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Trigran Investments allocated the biggest weight to Gentherm Inc (NASDAQ:THRM), around 7.78% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to THRM.

Due to the fact that Gentherm Inc (NASDAQ:THRM) has witnessed a decline in interest from the smart money, we can see that there exists a select few money managers that decided to sell off their entire stakes in the first quarter. At the top of the heap, Mika Toikka's AlphaCrest Capital Management dropped the biggest investment of the 750 funds followed by Insider Monkey, totaling about $1.4 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund said goodbye to about $0.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 6 funds in the first quarter.

Let's go over hedge fund activity in other stocks similar to Gentherm Inc (NASDAQ:THRM). We will take a look at Southside Bancshares, Inc. (NASDAQ:SBSI), Antero Midstream Corp (NYSE:AM), Plains GP Holdings LP (NYSE:PAGP), and Magnolia Oil & Gas Corporation (NYSE:MGY). This group of stocks' market valuations resemble THRM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBSI,8,43135,0 AM,14,45083,0 PAGP,22,88065,-4 MGY,20,47544,2 Average,16,55957,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $55 million in THRM's case. Plains GP Holdings LP (NYSE:PAGP) is the most popular stock in this table. On the other hand Southside Bancshares, Inc. (NASDAQ:SBSI) is the least popular one with only 8 bullish hedge fund positions. Gentherm Inc (NASDAQ:THRM) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on THRM, though not to the same extent, as the stock returned 23.9% during the second quarter and outperformed the market.

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

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