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Hedge Funds Never Been This Bullish On BorgWarner Inc. (BWA)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded BorgWarner Inc. (NYSE:BWA) and determine whether the smart money was really smart about this stock.

BorgWarner Inc. (NYSE:BWA) has seen an increase in hedge fund sentiment recently. BorgWarner Inc. (NYSE:BWA) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that BWA isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a gander at the new hedge fund action regarding BorgWarner Inc. (NYSE:BWA).

What have hedge funds been doing with BorgWarner Inc. (NYSE:BWA)?

At Q2’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in BWA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in BorgWarner Inc. (NYSE:BWA), which was worth $375.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $81.4 million worth of shares. Ariel Investments, Millennium Management, and Jet Capital Investors 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 Halcyon Asset Management allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 10.62% of its 13F portfolio. Jet Capital Investors is also relatively very bullish on the stock, dishing out 7.02 percent of its 13F equity portfolio to BWA.

As one would reasonably expect, specific money managers have jumped into BorgWarner Inc. (NYSE:BWA) headfirst. Halcyon Asset Management, managed by John Bader, established the most valuable position in BorgWarner Inc. (NYSE:BWA). Halcyon Asset Management had $29 million invested in the company at the end of the quarter. Javier Velazquez’s Albar Capital also made a $8.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Pigott’s Fort Baker Capital Management, Stephen C. Freidheim’s Cyrus Capital Partners, and Curtis Schenker and Craig Effron’s Scoggin.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as BorgWarner Inc. (NYSE:BWA) but similarly valued. We will take a look at Vail Resorts, Inc. (NYSE:MTN), Hill-Rom Holdings, Inc. (NYSE:HRC), Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), Exelixis, Inc. (NASDAQ:EXEL), Americold Realty Trust (NYSE:COLD), and Formula One Group (NASDAQ:FWONA). This group of stocks’ market valuations resemble BWA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTN 37 753210 0
HRC 30 944643 0
VNO 17 126380 -8
REYN 17 319911 0
EXEL 39 1170545 9
COLD 29 290324 4
FWONA 17 248890 0
Average 26.6 550558 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $803 million in BWA’s case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 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 overall hedge fund sentiment score for BWA is 80.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on BWA, though not to the same extent, as the stock returned 15.5% since the end of June and outperformed the market as well.

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