Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Aptiv PLC (NYSE:APTV).
Aptiv PLC (NYSE:APTV) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that aptv isn’t among the 30 most popular stocks among hedge funds.
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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a peek at the recent hedge fund action surrounding Aptiv PLC (NYSE:APTV).
How have hedgies been trading Aptiv PLC (NYSE:APTV)?
At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APTV over the last 15 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Aptiv PLC (NYSE:APTV) was held by Generation Investment Management, which reported holding $335.6 million worth of stock at the end of March. It was followed by Senator Investment Group with a $149 million position. Other investors bullish on the company included Impax Asset Management, Melvin Capital Management, and Partner Fund Management.
Due to the fact that Aptiv PLC (NYSE:APTV) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of money managers who sold off their full holdings last quarter. Intriguingly, Larry Robbins’s Glenview Capital sold off the largest investment of the 700 funds watched by Insider Monkey, valued at close to $80.4 million in stock, and Jeffrey Tannenbaum’s Fir Tree was right behind this move, as the fund dropped about $38 million worth. These moves are important to note, as total hedge fund interest was cut by 11 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Aptiv PLC (NYSE:APTV) but similarly valued. These stocks are TAL Education Group (NYSE:TAL), Shopify Inc (NYSE:SHOP), Telefonica Brasil SA (NYSE:VIV), and Cheniere Energy Partners LP (NYSE:CQP). This group of stocks’ market valuations are closest to APTV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TAL | 25 | 1055553 | 1 |
| SHOP | 25 | 1230786 | -4 |
| VIV | 9 | 69810 | -3 |
| CQP | 7 | 14019 | 3 |
| Average | 16.5 | 592542 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $593 million. That figure was $792 million in APTV’s case. TAL Education Group (NYSE:TAL) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Aptiv PLC (NYSE:APTV) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately APTV wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on APTV were disappointed as the stock returned -13.4% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
