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Did Hedge Funds Make The Right Call On BorgWarner Inc. (BWA) ?

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 BorgWarner Inc. (NYSE:BWA) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is BorgWarner Inc. (NYSE:BWA) a superb investment now? The best stock pickers were taking a bullish view. The number of long hedge fund positions went up by 3 lately. Our calculations also showed that BWA 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.

According to most stock holders, hedge funds are seen as unimportant, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open at the moment, Our experts hone in on the top tier of this club, approximately 850 funds. These hedge fund managers control bulk of all hedge funds’ total capital, and by shadowing their first-class picks, Insider Monkey has determined various investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a gander at the new hedge fund action regarding BorgWarner Inc. (NYSE:BWA).

What does smart money think about BorgWarner Inc. (NYSE:BWA)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in BWA a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of BorgWarner Inc. (NYSE:BWA), with a stake worth $294.5 million reported as of the end of September. Trailing Diamond Hill Capital was Ariel Investments, which amassed a stake valued at $52.8 million. AQR Capital Management, GAMCO Investors, and TIG Advisors 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 Weiss Asset Management allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 2.12% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, earmarking 2.02 percent of its 13F equity portfolio to BWA.

As aggregate interest increased, some big names were leading the bulls’ herd. TIG Advisors, managed by Carl Tiedemann and Michael Tiedemann, initiated the largest position in BorgWarner Inc. (NYSE:BWA). TIG Advisors had $14.2 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also initiated a $13.3 million position during the quarter. The other funds with new positions in the stock are Phill Gross and Robert Atchinson’s Adage Capital Management, Andrew Kurita’s Kettle Hill Capital Management, and Israel Englander’s Millennium Management.

Let’s check out hedge fund activity in other stocks similar to BorgWarner Inc. (NYSE:BWA). These stocks are Canopy Growth Corporation (NYSE:CGC), Wayfair Inc (NYSE:W), Repligen Corporation (NASDAQ:RGEN), and Haemonetics Corporation (NYSE:HAE). All of these stocks’ market caps resemble BWA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CGC 10 30232 -4
W 34 1043243 1
RGEN 21 321987 -2
HAE 34 710291 1
Average 24.75 526438 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $526 million. That figure was $482 million in BWA’s case. Wayfair Inc (NYSE:W) is the most popular stock in this table. On the other hand Canopy Growth Corporation (NYSE:CGC) is the least popular one with only 10 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 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 BWA as the stock returned 45.6% 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.