Is BorgWarner Inc. (BWA) Going to Burn These Hedge Funds?

Is BorgWarner Inc. (NYSE:BWA) a buy?

In the eyes of many of your peers, hedge funds are seen as bloated, outdated investment tools of a period lost to current times. Although there are over 8,000 hedge funds in operation in present day, this site aim at the leaders of this group, about 525 funds. It is assumed that this group oversees most of the smart money’s total assets, and by monitoring their best picks, we’ve identified a number of investment strategies that have historically outstripped the S&P 500. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as necessary, positive insider trading activity is another way to look at the marketplace. As the old adage goes: there are a number of motivations for an insider to cut shares of his or her company, but just one, very clear reason why they would buy. Plenty of academic studies have demonstrated the useful potential of this method if investors know what to do (learn more here).

What’s more, let’s examine the recent info surrounding BorgWarner Inc. (NYSE:BWA).

Hedge fund activity in BorgWarner Inc. (NYSE:BWA)

At Q2’s end, a total of 32 of the hedge funds we track were bullish in this stock, a change of 60% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably.

According to our 13F database, Natixis Global Asset Management’s Harris Associates had the biggest position in BorgWarner Inc. (NYSE:BWA), worth close to $289 million, comprising 0.6% of its total 13F portfolio. On Harris Associates’s heels is Christopher Medlock James of Partner Fund Management, with a $79.5 million position; the fund has 1.7% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Mario Gabelli’s GAMCO Investors, Ken Griffin’s Citadel Investment Group and Christopher Lord’s Criterion Capital.

With a general bullishness amongst the titans, specific money managers were leading the bulls’ herd. Partner Fund Management, managed by Christopher Medlock James, created the largest position in BorgWarner Inc. (NYSE:BWA). Partner Fund Management had 79.5 million invested in the company at the end of the quarter. Mario Gabelli’s GAMCO Investors also made a $52.5 million investment in the stock during the quarter. The following funds were also among the new BWA investors: Ken Griffin’s Citadel Investment Group, Christopher Lord’s Criterion Capital, and D. E. Shaw’s D E Shaw.

What do corporate executives and insiders think about BorgWarner Inc. (NYSE:BWA)?

Legal insider trading, particularly when it’s bullish, is best served when the company in focus has experienced transactions within the past half-year. Over the last half-year time frame, BorgWarner Inc. (NYSE:BWA) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also examine the relationship between both of these indicators in other stocks similar to BorgWarner Inc. (NYSE:BWA). These stocks are Lear Corporation (NYSE:LEA), Delphi Automotive PLC (NYSE:DLPH), LKQ Corporation (NASDAQ:LKQ), TRW Automotive Holdings Corp. (NYSE:TRW), and Autoliv Inc. (NYSE:ALV). This group of stocks are the members of the auto parts industry and their market caps resemble BWA’s market cap.

Using the results demonstrated by our strategies, average investors should always keep one eye on hedge fund and insider trading sentiment, and BorgWarner Inc. (NYSE:BWA) shareholders fit into this picture quite nicely.

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