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Were Hedge Funds Right About Souring On Sensata Technologies Holding (ST)?

Reymerlyn Martin

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Sensata Technologies Holding N.V. (NYSE:ST).

Sensata Technologies Holding N.V. (NYSE:ST) shareholders have witnessed a decrease in enthusiasm from smart money of late. Our calculations also showed that ST isn't among the 30 most popular stocks among hedge funds.

In the 21st century investor’s toolkit there are tons of signals stock traders use to assess stocks. Two of the less utilized signals are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can beat the market by a superb margin (see the details here).

Dmitry Balyasny

Let's view the latest hedge fund action surrounding Sensata Technologies Holding N.V. (NYSE:ST).

How have hedgies been trading Sensata Technologies Holding N.V. (NYSE:ST)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in ST a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

ST_apr2019

Among these funds, Generation Investment Management held the most valuable stake in Sensata Technologies Holding N.V. (NYSE:ST), which was worth $521.5 million at the end of the third quarter. On the second spot was SQ Advisors which amassed $241.2 million worth of shares. Moreover, Cantillon Capital Management, Diamond Hill Capital, and Gates Capital Management were also bullish on Sensata Technologies Holding N.V. (NYSE:ST), allocating a large percentage of their portfolios to this stock.

Seeing as Sensata Technologies Holding N.V. (NYSE:ST) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedge funds that elected to cut their positions entirely heading into Q3. It's worth mentioning that D. E. Shaw's D E Shaw cut the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $12.3 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund dropped about $9.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds heading into Q3.

Let's go over hedge fund activity in other stocks similar to Sensata Technologies Holding N.V. (NYSE:ST). We will take a look at Grupo Televisa SAB (NYSE:TV), PulteGroup, Inc. (NYSE:PHM), Sarepta Therapeutics Inc (NASDAQ:SRPT), and Service Corporation International (NYSE:SCI). This group of stocks' market valuations match ST's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TV,14,786715,-5 PHM,24,567082,6 SRPT,41,940036,-2 SCI,17,523621,2 Average,24,704364,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $704 million. That figure was $1308 million in ST's case. Sarepta Therapeutics Inc (NASDAQ:SRPT) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 14 bullish hedge fund positions. Sensata Technologies Holding N.V. (NYSE:ST) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately ST wasn't in this group. Hedge funds that bet on ST were disappointed as the stock returned 10.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.

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

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