Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Delphi Technologies PLC (NYSE:DLPH) was in 19 hedge funds' portfolios at the end of the third quarter of 2019. DLPH investors should pay attention to a decrease in hedge fund interest recently. There were 25 hedge funds in our database with DLPH holdings at the end of the previous quarter. Our calculations also showed that DLPH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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_189625" align="aligncenter" width="450"] Tom Sandell of Sandell Asset Management[/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 look at the recent hedge fund action surrounding Delphi Technologies PLC (NYSE:DLPH).
What does smart money think about Delphi Technologies PLC (NYSE:DLPH)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DLPH over the last 17 quarters. So, let's check 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, D E Shaw, managed by David E. Shaw, holds the biggest position in Delphi Technologies PLC (NYSE:DLPH). D E Shaw has a $35.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Cliff Asness of AQR Capital Management, with a $31.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Ian Simm's Impax Asset Management, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Moon Capital allocated the biggest weight to Delphi Technologies PLC (NYSE:DLPH), around 1.25% of its 13F portfolio. Masters Capital Management is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to DLPH.
Due to the fact that Delphi Technologies PLC (NYSE:DLPH) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few funds that elected to cut their positions entirely in the third quarter. It's worth mentioning that Principal Global Investors's Columbus Circle Investors sold off the largest position of all the hedgies followed by Insider Monkey, worth about $10.2 million in stock. Joseph Samuels's fund, Islet Management, also dumped its stock, about $6.8 million worth. These transactions are important to note, as total hedge fund interest fell by 6 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Delphi Technologies PLC (NYSE:DLPH). These stocks are Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), FB Financial Corporation (NYSE:FBK), Schweitzer-Mauduit International, Inc. (NYSE:SWM), and Stratasys, Ltd. (NASDAQ:SSYS). This group of stocks' market valuations match DLPH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCO,43,334472,11 FBK,7,80971,3 SWM,8,28250,-2 SSYS,13,108677,-3 Average,17.75,138093,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $196 million in DLPH's case. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 7 bullish hedge fund positions. Delphi Technologies PLC (NYSE:DLPH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately DLPH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DLPH were disappointed as the stock returned -7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.