The financial regulations require hedge funds and wealthy investors that exceeded 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 September 30th, about a month before the elections. We at Insider Monkey have made an extensive database of more than 817 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.
Is BWA a good stock to buy? BorgWarner Inc. (NYSE:BWA) has experienced a decrease in hedge fund sentiment of late. BorgWarner Inc. (NYSE:BWA) was in 30 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that BWA isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a gander at the latest hedge fund action regarding BorgWarner Inc. (NYSE:BWA).
Do Hedge Funds Think BWA Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2020. By comparison, 26 hedge funds held shares or bullish call options 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.
The largest stake in BorgWarner Inc. (NYSE:BWA) was held by Diamond Hill Capital, which reported holding $386.1 million worth of stock at the end of September. It was followed by Ariel Investments with a $72.1 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Jet Capital Investors allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 5.34% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, setting aside 2.99 percent of its 13F equity portfolio to BWA.
Due to the fact that BorgWarner Inc. (NYSE:BWA) has faced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers that elected to cut their entire stakes heading into Q4. Intriguingly, John Bader’s Halcyon Asset Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $29 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $16.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds heading into Q4.
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 Snap-on Incorporated (NYSE:SNA), Dropbox, Inc. (NASDAQ:DBX), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), Jazz Pharmaceuticals Plc (NASDAQ:JAZZ), Everest Re Group Ltd (NYSE:RE), Royal Gold, Inc (NASDAQ:RGLD), and OneConnect Financial Technology Co., Ltd. (NYSE:OCFT). All of these stocks’ market caps match BWA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $798 million in BWA’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 11 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 55.4. 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. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 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 0.1% since the end of September (through 12/18) 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 this year.
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Disclosure: None. This article was originally published at Insider Monkey.