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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Aptiv PLC (NYSE:APTV) to find out whether there were any major changes in hedge funds' views.
Is APTV a good stock to buy now? The best stock pickers were taking a pessimistic view. The number of bullish hedge fund positions were cut by 5 in recent months. Aptiv PLC (NYSE:APTV) was in 38 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 49. Our calculations also showed that APTV isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 43 hedge funds in our database with APTV positions at the end of the second 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 66 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.
Bruce Kovner of Caxton Associates LP
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a gander at the fresh hedge fund action encompassing Aptiv PLC (NYSE:APTV).
Do Hedge Funds Think APTV Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in APTV a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Aptiv PLC (NYSE:APTV) was held by Generation Investment Management, which reported holding $611.4 million worth of stock at the end of September. It was followed by Impax Asset Management with a $231.9 million position. Other investors bullish on the company included Holocene Advisors, Senator Investment Group, and Caxton Associates LP. In terms of the portfolio weights assigned to each position Jade Capital Advisors allocated the biggest weight to Aptiv PLC (NYSE:APTV), around 5.09% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, setting aside 4.4 percent of its 13F equity portfolio to APTV.
Because Aptiv PLC (NYSE:APTV) has witnessed a decline in interest from the smart money, we can see that there is a sect of hedge funds that slashed their full holdings in the third quarter. It's worth mentioning that Joseph Samuels's Islet Management dropped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, worth about $21.4 million in stock. Seth Wunder's fund, Black-and-White Capital, also dropped its stock, about $9.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 5 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Aptiv PLC (NYSE:APTV) but similarly valued. These stocks are Fiat Chrysler Automobiles NV (NYSE:FCAU), Corning Incorporated (NYSE:GLW), Copart, Inc. (NASDAQ:CPRT), RingCentral Inc (NYSE:RNG), Credit Suisse Group AG (NYSE:CS), Skyworks Solutions Inc (NASDAQ:SWKS), and China Telecom Corporation Limited (NYSE:CHA). This group of stocks' market values are similar to APTV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCAU,20,218304,0 GLW,36,346549,8 CPRT,56,1077546,-4 RNG,59,3300948,-3 CS,13,68386,-1 SWKS,50,886176,1 CHA,3,30054,-2 Average,33.9,846852,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $847 million. That figure was $1355 million in APTV's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 3 bullish hedge fund positions. Aptiv PLC (NYSE:APTV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APTV is 54.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on APTV as the stock returned 35.6% since the end of Q3 (through 12/18) 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.
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