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Hedge Funds Aren’t Impressed By BorgWarner Inc. (BWA)

The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded BorgWarner Inc. (NYSE:BWA) based on those filings.

Hedge fund interest in BorgWarner Inc. (NYSE:BWA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare BWA to other stocks including Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), StoneCo Ltd. (NASDAQ:STNE), and Gaming and Leisure Properties Inc (NASDAQ:GLPI) to get a better sense of its popularity. Our calculations also showed that BWA isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BWA_oct2019

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the new hedge fund action surrounding BorgWarner Inc. (NYSE:BWA).

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

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 24 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.

Ric Dillon Diamond Hill Capital

Among these funds, Diamond Hill Capital held the most valuable stake in BorgWarner Inc. (NYSE:BWA), which was worth $419.3 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $104 million worth of shares. Moreover, Ariel Investments, D E Shaw, and Millennium Management were also bullish on BorgWarner Inc. (NYSE:BWA), allocating a large percentage of their portfolios to this stock.

Due to the fact that BorgWarner Inc. (NYSE:BWA) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers who sold off their positions entirely last quarter. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth close to $2.8 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund sold off about $1.7 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as BorgWarner Inc. (NYSE:BWA) but similarly valued. These stocks are Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), StoneCo Ltd. (NASDAQ:STNE), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and Graco Inc. (NYSE:GGG). This group of stocks’ market values are similar to BWA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBS 12 451545 -4
STNE 27 1129870 4
GLPI 27 783348 0
GGG 24 203550 6
Average 22.5 642078 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $642 million. That figure was $831 million in BWA’s case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is the least popular one with only 12 bullish hedge fund positions. BorgWarner Inc. (NYSE:BWA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BWA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BWA investors were disappointed as the stock returned -12.2% during the third quarter 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 in 2019.

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

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