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Hedge Funds Are Done Buying Amphenol Corporation (APH)?

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Amphenol Corporation (NYSE:APH) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Amphenol Corporation (NYSE:APH) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 42 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that APH 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as T. Rowe Price Group, Inc. (NASDAQ:TROW), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and Alcon Inc. (NYSE:ALC) to gather more data points. Our calculations also showed that APH 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s analyze the latest hedge fund action encompassing Amphenol Corporation (NYSE:APH).

How have hedgies been trading Amphenol Corporation (NYSE:APH)?

At Q2’s end, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in APH a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the most valuable position in Amphenol Corporation (NYSE:APH). Select Equity Group has a $498.3 million position in the stock, comprising 2.9% of its 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $91.8 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Aaron Cowen’s Suvretta Capital Management, Michael Rockefeller and KarláKroeker’s Woodline Partners and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Ayrshire Capital Management allocated the biggest weight to Amphenol Corporation (NYSE:APH), around 3.39% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, dishing out 2.86 percent of its 13F equity portfolio to APH.

Judging by the fact that Amphenol Corporation (NYSE:APH) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers who were dropping their full holdings last quarter. Interestingly, Anand Parekh’s Alyeska Investment Group sold off the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $16.9 million in stock. Jinghua Yan’s fund, TwinBeech Capital, also dumped its stock, about $1.4 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Amphenol Corporation (NYSE:APH) but similarly valued. These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), IDEXX Laboratories, Inc. (NASDAQ:IDXX), Alcon Inc. (NYSE:ALC), CoStar Group Inc (NASDAQ:CSGP), MSCI Inc (NYSE:MSCI), Marriott International Inc (NASDAQ:MAR), and ResMed Inc. (NYSE:RMD). All of these stocks’ market caps are similar to APH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TROW 34 337582 10
IDXX 40 417149 9
ALC 21 584000 -4
CSGP 50 2267394 10
MSCI 44 729558 15
MAR 48 2159338 1
RMD 25 224162 -8
Average 37.4 959883 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $960 million. That figure was $1013 million in APH’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 21 bullish hedge fund positions. Amphenol Corporation (NYSE:APH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APH is 71.2. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on APH, though not to the same extent, as the stock returned 14.6% since the end of June and outperformed the market as well.

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