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Did Hedge Funds Make The Right Call On Delphi Technologies PLC (DLPH)?

Asma UL Husna

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Delphi Technologies PLC (NYSE:DLPH) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Delphi Technologies PLC (NYSE:DLPH) a bargain? Hedge funds were buying. The number of long hedge fund positions increased by 2 recently. Our calculations also showed that DLPH 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). DLPH was in 19 hedge funds' portfolios at the end of March. There were 17 hedge funds in our database with DLPH holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to take a look at the fresh hedge fund action regarding Delphi Technologies PLC (NYSE:DLPH).

How are hedge funds trading Delphi Technologies PLC (NYSE:DLPH)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in DLPH a year ago. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

More specifically, Magnetar Capital was the largest shareholder of Delphi Technologies PLC (NYSE:DLPH), with a stake worth $25.3 million reported as of the end of September. Trailing Magnetar Capital was Alpine Associates, which amassed a stake valued at $17.4 million. D E Shaw, TIG Advisors, and Water Island Capital 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 Water Island Capital allocated the biggest weight to Delphi Technologies PLC (NYSE:DLPH), around 0.79% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, setting aside 0.69 percent of its 13F equity portfolio to DLPH.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. Magnetar Capital, managed by Alec Litowitz and Ross Laser, established the most outsized position in Delphi Technologies PLC (NYSE:DLPH). Magnetar Capital had $25.3 million invested in the company at the end of the quarter. Robert Emil Zoellner's Alpine Associates also made a $17.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Carl Tiedemann and Michael Tiedemann's TIG Advisors, John Orrico's Water Island Capital, and Clint Carlson's Carlson Capital.

Let's also examine hedge fund activity in other stocks similar to Delphi Technologies PLC (NYSE:DLPH). We will take a look at Sculptor Capital Management, Inc. (NYSE:SCU), Xperi Holding Corporation (NASDAQ:XPER), Republic Bancorp, Inc. (NASDAQ:RBCAA), and GreenSky, Inc. (NASDAQ:GSKY). This group of stocks' market valuations are similar to DLPH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCU,12,72077,0 XPER,20,108532,-3 RBCAA,5,8845,-3 GSKY,9,14686,-3 Average,11.5,51035,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $106 million in DLPH's case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Republic Bancorp, Inc. (NASDAQ:RBCAA) is the least popular one with only 5 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. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on DLPH as the stock returned 102% since Q1 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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