Is Sensient Technologies Corporation (SXT) Going to Burn These Hedge Funds?

Is Sensient Technologies Corporation (NYSE:SXT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Sensient Technologies Corporation (NYSE:SXT) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article we will also compare SXT to other stocks, including Ciena Corporation (NASDAQ:CIEN), Dyax Corp. (NASDAQ:DYAX), and G-III Apparel Group, Ltd. (NASDAQ:GIII) to get a better sense of its popularity.

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To most investors, hedge funds are assumed to be underperforming, outdated financial vehicles of the past. While there are greater than 8000 funds trading at present, Our researchers hone in on the elite of this club, around 700 funds. These money managers oversee the lion’s share of the smart money’s total asset base, and by observing their finest investments, Insider Monkey has found a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Keeping this in mind, let’s take a look at the latest action surrounding Sensient Technologies Corporation (NYSE:SXT).

How have hedgies been trading Sensient Technologies Corporation (NYSE:SXT)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Sensient Technologies Corporation (NYSE:SXT), worth close to $60.5 million, comprising 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Paul Marshall and Ian Wace’s Marshall Wace LLP, with a $19.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish consist of Lee Munder’s Lee Munder Capital Group, Cliff Asness’ AQR Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management.

Seeing as Sensient Technologies Corporation (NYSE:SXT) has experienced falling interest from the smart money, it’s safe to say that there was a specific group of fund managers who were dropping their entire stakes heading into Q4. Interestingly, Paul Tudor Jones’ Tudor Investment Corp dropped the biggest investment of all the hedgies tracked by Insider Monkey, worth an estimated $0.3 million in stock. Jacob Gottlieb’s fund, Visium Asset Management, also cut its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Sensient Technologies Corporation (NYSE:SXT). We will take a look at Ciena Corporation (NASDAQ:CIEN), Dyax Corp. (NASDAQ:DYAX), G-III Apparel Group, Ltd. (NASDAQ:GIII), and Mercury General Corporation (NYSE:MCY). This group of stocks’ market caps are similar to SXT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CIEN 33 258849 2
DYAX 32 512610 -1
GIII 18 177738 -1
MCY 8 17969 0

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $242 million, compared to $130 million in SXT’s case. Ciena Corporation (NASDAQ:CIEN) is the most popular stock in this table, while Mercury General Corporation (NYSE:MCY) is the least popular one with only 8 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CIEN might be a better candidate to consider a long position.