We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like BorgWarner Inc. (NYSE:BWA).
Is BorgWarner Inc. (NYSE:BWA) the right investment to pursue these days? Prominent investors are getting more optimistic. The number of long hedge fund positions rose by 1 in recent months. Our calculations also showed that BWA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). BWA was in 22 hedge funds' portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with BWA positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the latest hedge fund action regarding BorgWarner Inc. (NYSE:BWA).
How are hedge funds trading BorgWarner Inc. (NYSE:BWA)?
Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in BWA 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.
When looking at the institutional investors followed by Insider Monkey, Ric Dillon's Diamond Hill Capital has the largest position in BorgWarner Inc. (NYSE:BWA), worth close to $444 million, corresponding to 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Ariel Investments, managed by John W. Rogers, which holds a $72.3 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain David E. Shaw's D E Shaw, Israel Englander's Millennium Management and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 3.77% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 2.36 percent of its 13F equity portfolio to BWA.
Now, specific money managers have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, established the most outsized call position in BorgWarner Inc. (NYSE:BWA). Interval Partners had $9.2 million invested in the company at the end of the quarter. John W. Moon's Moon Capital also made a $4 million investment in the stock during the quarter. The following funds were also among the new BWA investors: Minhua Zhang's Weld Capital Management, Noam Gottesman's GLG Partners, and David Andre and Astro Teller's Cerebellum Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as BorgWarner Inc. (NYSE:BWA) but similarly valued. We will take a look at Nielsen Holdings plc (NYSE:NLSN), Douglas Emmett, Inc. (NYSE:DEI), Teva Pharmaceutical Industries Limited (NYSE:TEVA), and Huaneng Power International Inc (NYSE:HNP). This group of stocks' market valuations resemble BWA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLSN,30,1129196,-5 DEI,20,570666,1 TEVA,23,660560,-2 HNP,3,2567,0 Average,19,590747,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $591 million. That figure was $718 million in BWA's case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 3 bullish hedge fund positions. BorgWarner Inc. (NYSE:BWA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on BWA as the stock returned 15.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.