Do Hedge Funds Love BorgWarner Inc. (BWA)?

Does BorgWarner Inc. (NYSE:BWA) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail unconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.

BorgWarner Inc. (NYSE:BWA) was in 22 hedge funds’ portfolios at the end of September. BWA investors should be aware of a decrease in activity from the world’s largest hedge funds lately. There were 24 hedge funds in our database with BWA holdings at the end of the previous quarter. Our calculations also showed that BWA isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.


Let’s check out the latest hedge fund action encompassing BorgWarner Inc. (NYSE:BWA).

How have hedgies been trading BorgWarner Inc. (NYSE:BWA)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BWA over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Diamond Hill Capital held the most valuable stake in BorgWarner Inc. (NYSE:BWA), which was worth $389.7 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $72.6 million worth of shares. Moreover, Point72 Asset Management, D E Shaw, and Citadel Investment Group were also bullish on BorgWarner Inc. (NYSE:BWA), allocating a large percentage of their portfolios to this stock.

Seeing as BorgWarner Inc. (NYSE:BWA) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that elected to cut their entire stakes heading into Q3. At the top of the heap, Ian Simm’s Impax Asset Management dumped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $18.2 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dropped about $4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as BorgWarner Inc. (NYSE:BWA) but similarly valued. These stocks are iShares MSCI ACWI ETF (NASDAQ:ACWI), AGNC Investment Corp. (NASDAQ:AGNC), Goldcorp Inc. (NYSE:GG), and Pinnacle West Capital Corporation (NYSE:PNW). This group of stocks’ market values are closest to BWA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACWI 8 119261 0
AGNC 15 216291 4
GG 18 94622 -3
PNW 20 630912 3
Average 15.25 265272 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $725 million in BWA’s case. Pinnacle West Capital Corporation (NYSE:PNW) is the most popular stock in this table. On the other hand iShares MSCI ACWI Index Fund (NASDAQ:ACWI) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks BorgWarner Inc. (NYSE:BWA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None. This article was originally published at Insider Monkey.