These Hedge Funds Dropped The Ball On Aptiv PLC (APTV)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Aptiv PLC (NYSE:APTV) and determine whether hedge funds had an edge regarding this stock.

Aptiv PLC (NYSE:APTV) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. APTV investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 46 hedge funds in our database with APTV positions at the end of the previous quarter. Our calculations also showed that APTV isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the recent hedge fund action regarding Aptiv PLC (NYSE:APTV).

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

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in APTV a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Generation Investment Management, managed by David Blood and Al Gore, holds the number one position in Aptiv PLC (NYSE:APTV). Generation Investment Management has a $335.2 million position in the stock, comprising 2.4% of its 13F portfolio. The second most bullish fund manager is Brandon Haley of Holocene Advisors, with a $101.9 million position; 1.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions encompass Ian Simm’s Impax Asset Management, Ken Griffin’s Citadel Investment Group and Seth Wunder’s Black-and-White Capital. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to Aptiv PLC (NYSE:APTV), around 3.08% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, designating 2.38 percent of its 13F equity portfolio to APTV.

Since Aptiv PLC (NYSE:APTV) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers who sold off their entire stakes in the first quarter. Interestingly, Steve Cohen’s Point72 Asset Management said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $21 million in stock. Neal Nathani and Darren Dinneen’s fund, Totem Point Management, also dumped its stock, about $15.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 13 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Aptiv PLC (NYSE:APTV). We will take a look at Hewlett Packard Enterprise Company (NYSE:HPE), Twilio Inc. (NYSE:TWLO), TransUnion (NYSE:TRU), and Evergy, Inc. (NYSE:EVRG). This group of stocks’ market values are similar to APTV’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $961 million. That figure was $679 million in APTV’s case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Hewlett Packard Enterprise Company (NYSE:HPE) is the least popular one with only 29 bullish hedge fund positions. Aptiv PLC (NYSE:APTV) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on APTV as the stock returned 58.2% during the second quarter and outperformed the market by an even larger margin.

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