Were Hedge Funds Right About Piling Into Aptiv PLC (APTV)?

Abigail Fisher
·6 min read

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Aptiv PLC (NYSE:APTV)? The smart money sentiment can provide an answer to this question.

Aptiv PLC (NYSE:APTV) was in 43 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 49. APTV shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. There were 33 hedge funds in our database with APTV positions at the end of the first quarter. Our calculations also showed that APTV isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood
David Blood

David Blood of Generation Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth 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 to get excerpts of these letters in your inbox. Keeping this in mind we're going to view the new hedge fund action encompassing Aptiv PLC (NYSE:APTV).

How have hedgies been trading Aptiv PLC (NYSE:APTV)?

At Q2's end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in APTV over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Aptiv PLC (NYSE:APTV) was held by Generation Investment Management, which reported holding $568 million worth of stock at the end of September. It was followed by Impax Asset Management with a $168.9 million position. Other investors bullish on the company included Holocene Advisors, Candlestick Capital Management, and Senator Investment Group. In terms of the portfolio weights assigned to each position Generation Investment Management allocated the biggest weight to Aptiv PLC (NYSE:APTV), around 3.28% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, earmarking 2.95 percent of its 13F equity portfolio to APTV.

As one would reasonably expect, key money managers have been driving this bullishness. Candlestick Capital Management, managed by Jack Woodruff, created the largest position in Aptiv PLC (NYSE:APTV). Candlestick Capital Management had $54.5 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $29 million position during the quarter. The following funds were also among the new APTV investors: Joseph Samuels's Islet Management, Christopher James's Partner Fund Management, and Zach Schreiber's Point State Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Aptiv PLC (NYSE:APTV) but similarly valued. We will take a look at FirstEnergy Corp. (NYSE:FE), Simon Property Group, Inc (NYSE:SPG), Canon Inc. (NYSE:CAJ), Equifax Inc. (NYSE:EFX), Cerner Corporation (NASDAQ:CERN), Fiat Chrysler Automobiles NV (NYSE:FCAU), and DTE Energy Company (NYSE:DTE). This group of stocks' market caps are closest to APTV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FE,41,992017,-3 SPG,27,531930,-2 CAJ,9,55132,2 EFX,28,1186553,-4 CERN,38,875303,-3 FCAU,20,365898,-5 DTE,24,384220,-5 Average,26.7,627293,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $1158 million in APTV's case. FirstEnergy Corp. (NYSE:FE) is the most popular stock in this table. On the other hand Canon Inc. (NYSE:CAJ) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Aptiv PLC (NYSE:APTV) is more popular among hedge funds. Our overall hedge fund sentiment score for APTV is 86.3. 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. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on APTV as the stock returned 28.7% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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