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Did Hedge Funds Make The Right Call On Sensient Technologies Corporation (SXT) ?

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 Sensient Technologies Corporation (NYSE:SXT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Sensient Technologies Corporation (NYSE:SXT) the right investment to pursue these days? The best stock pickers were taking a bullish view. The number of bullish hedge fund bets improved by 3 in recent months. Our calculations also showed that SXT 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). SXT was in 23 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with SXT holdings 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 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a peek at the key hedge fund action surrounding Sensient Technologies Corporation (NYSE:SXT).

What have hedge funds been doing with Sensient Technologies Corporation (NYSE:SXT)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in SXT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the largest position in Sensient Technologies Corporation (NYSE:SXT). GAMCO Investors has a $22.7 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $13.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Sensient Technologies Corporation (NYSE:SXT), around 0.39% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.27 percent of its 13F equity portfolio to SXT.

As aggregate interest increased, key hedge funds have jumped into Sensient Technologies Corporation (NYSE:SXT) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Sensient Technologies Corporation (NYSE:SXT). Arrowstreet Capital had $8.1 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $3.4 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management, Donald Sussman’s Paloma Partners, and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Sensient Technologies Corporation (NYSE:SXT) but similarly valued. We will take a look at Olin Corporation (NYSE:OLN), The Simply Good Foods Company (NASDAQ:SMPL), SVMK Inc. (NASDAQ:SVMK), and Greif, Inc. (NYSE:GEF). All of these stocks’ market caps are closest to SXT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OLN 33 431603 0
SMPL 19 152168 -15
SVMK 29 211973 -2
GEF 17 64067 -1
Average 24.5 214953 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $83 million in SXT’s case. Olin Corporation (NYSE:OLN) is the most popular stock in this table. On the other hand Greif, Inc. (NYSE:GEF) is the least popular one with only 17 bullish hedge fund positions. Sensient Technologies Corporation (NYSE:SXT) 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 SXT, though not to the same extent, as the stock returned 20.9% during the second quarter and outperformed the market.

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