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Hedge Funds Were Crazy About Aptiv PLC (APTV), Look What Happened

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Aptiv PLC (NYSE:APTV).

Is Aptiv PLC (NYSE:APTV) undervalued? Hedge funds are becoming more confident. The number of bullish hedge fund positions went up by 1 in recent months. Our calculations also showed that APTV isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

GLENVIEW CAPITAL

We’re going to take a gander at the latest hedge fund action regarding Aptiv PLC (NYSE:APTV).

What does the smart money think about Aptiv PLC (NYSE:APTV)?

At the end of the fourth quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the second quarter of 2018. On the other hand, there were a total of 49 hedge funds with a bullish position in APTV a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

APTV_mar2019

According to Insider Monkey’s hedge fund database, David Blood and Al Gore’s Generation Investment Management has the biggest position in Aptiv PLC (NYSE:APTV), worth close to $184.4 million, corresponding to 1.5% of its total 13F portfolio. On Generation Investment Management’s heels is Senator Investment Group, managed by Doug Silverman and Alexander Klabin, which holds a $92.4 million position; 2.6% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Larry Robbins’s Glenview Capital, Ian Simm’s Impax Asset Management and Gabriel Plotkin’s Melvin Capital Management.

Now, key money managers were breaking ground themselves. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, created the biggest position in Aptiv PLC (NYSE:APTV). Polar Capital had $9.1 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal’s Luminus Management also initiated a $6.7 million position during the quarter. The following funds were also among the new APTV investors: Alexander Mitchell’s Scopus Asset Management, Neal Nathani and Darren Dinneen’s Totem Point Management, and Noam Gottesman’s GLG Partners.

Let’s check out hedge fund activity in other stocks similar to Aptiv PLC (NYSE:APTV). These stocks are Essex Property Trust Inc (NYSE:ESS), Church & Dwight Co., Inc. (NYSE:CHD), Entergy Corporation (NYSE:ETR), and Harris Corporation (NYSE:HRS). This group of stocks’ market values match APTV’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESS 19 432405 3
CHD 30 222985 10
ETR 31 1503762 4
HRS 23 677895 -4
Average 25.75 709262 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $709 million. That figure was $715 million in APTV’s case. Entergy Corporation (NYSE:ETR) is the most popular stock in this table. On the other hand Essex Property Trust Inc (NYSE:ESS) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Aptiv PLC (NYSE:APTV) is more popular among hedge funds. As we mentioned above top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also very bullish on APTV and proven right as the stock returned 33.5% and outperformed the market as well.

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

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