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Were Hedge Funds Right About Piling Into Amphenol Corporation (APH)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAmphenol Corporation (NYSE:APH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Amphenol Corporation (NYSE:APH) has seen an increase in support from the world’s most elite money managers recently. APH was in 42 hedge funds’ portfolios at the end of the first quarter of 2020. There were 36 hedge funds in our database with APH positions at the end of the previous quarter. Our calculations also showed that APH 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.

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.

Steven Cohen

Steven Cohen of Point72 Asset Management

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. Keeping this in mind we’re going to take a peek at the key hedge fund action regarding Amphenol Corporation (NYSE:APH).

What does smart money think about Amphenol Corporation (NYSE:APH)?

At Q1’s end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APH over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Amphenol Corporation (NYSE:APH), with a stake worth $344.6 million reported as of the end of September. Trailing Select Equity Group was D E Shaw, which amassed a stake valued at $39.9 million. Citadel Investment Group, Woodline Partners, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ayrshire Capital Management allocated the biggest weight to Amphenol Corporation (NYSE:APH), around 2.76% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, dishing out 2.41 percent of its 13F equity portfolio to APH.

As aggregate interest increased, some big names have jumped into Amphenol Corporation (NYSE:APH) headfirst. Alyeska Investment Group, managed by Anand Parekh, initiated the largest position in Amphenol Corporation (NYSE:APH). Alyeska Investment Group had $16.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $11.4 million investment in the stock during the quarter. The other funds with brand new APH positions are Mikal Patel’s Oribel Capital Management, Greg Eisner’s Engineers Gate Manager, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Amphenol Corporation (NYSE:APH). We will take a look at Dow Inc. (NYSE:DOW), Otis Worldwide Corporation (NYSE:OTIS), FirstEnergy Corp. (NYSE:FE), and The Clorox Company (NYSE:CLX). This group of stocks’ market caps resemble APH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOW 38 375922 4
OTIS 4 13927 4
FE 44 1209775 4
CLX 41 2343925 14
Average 31.75 985887 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $986 million. That figure was $604 million in APH’s case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Otis Worldwide Corporation (NYSE:OTIS) is the least popular one with only 4 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 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on APH as the stock returned 31.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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