We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether BorgWarner Inc. (NYSE:BWA) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
BorgWarner Inc. (NYSE:BWA) investors should be aware of an increase in enthusiasm from smart money lately. BWA was in 27 hedge funds’ portfolios at the end of December. There were 26 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 (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most traders, hedge funds are perceived as slow, old investment tools of the past. While there are more than 8000 funds trading today, Our researchers choose to focus on the aristocrats of this club, about 850 funds. It is estimated that this group of investors orchestrate most of the hedge fund industry’s total capital, and by watching their inimitable picks, Insider Monkey has identified a number of investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
John Rogers of Ariel Investments
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action regarding BorgWarner Inc. (NYSE:BWA).
How are hedge funds trading BorgWarner Inc. (NYSE:BWA)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BWA over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the number one position in BorgWarner Inc. (NYSE:BWA), worth close to $481.2 million, amounting to 2.4% of its total 13F portfolio. The second most bullish fund manager is Ariel Investments, led by John W. Rogers, holding a $86.2 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of D. E. Shaw’s D E Shaw, Cliff Asness’s AQR Capital Management and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 2.42% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to BWA.
Consequently, key hedge funds have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, assembled the most valuable position in BorgWarner Inc. (NYSE:BWA). Scopus Asset Management had $13.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $7.3 million investment in the stock during the quarter. The other funds with brand new BWA positions are Lee Ainslie’s Maverick Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks similar to BorgWarner Inc. (NYSE:BWA). We will take a look at Interpublic Group of Companies Inc (NYSE:IPG), Western Gas Partners, LP (NYSE:WES), OGE Energy Corp. (NYSE:OGE), and Kilroy Realty Corp (NYSE:KRC). 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 |
|---|---|---|---|
| IPG | 26 | 755208 | -1 |
| WES | 13 | 96321 | 2 |
| OGE | 17 | 156625 | 0 |
| KRC | 18 | 182727 | -8 |
| Average | 18.5 | 297720 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $298 million. That figure was $738 million in BWA’s case. Interpublic Group of Companies Inc (NYSE:IPG) is the most popular stock in this table. On the other hand Western Gas Partners, LP (NYSE:WES) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks BorgWarner Inc. (NYSE:BWA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately BWA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BWA were disappointed as the stock returned -46.6% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
