Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Franklin Electric Co., Inc. (NASDAQ:FELE).
Franklin Electric Co., Inc. (NASDAQ:FELE) was in 11 hedge funds' portfolios at the end of the third quarter of 2019. FELE investors should be aware of a decrease in hedge fund interest recently. There were 14 hedge funds in our database with FELE positions at the end of the previous quarter. Our calculations also showed that FELE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most market participants, hedge funds are viewed as underperforming, old financial vehicles of the past. While there are over 8000 funds trading today, Our experts hone in on the masters of this group, about 750 funds. These hedge fund managers shepherd the majority of the hedge fund industry's total capital, and by following their finest stock picks, Insider Monkey has uncovered several investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_193003" align="aligncenter" width="450"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the recent hedge fund action regarding Franklin Electric Co., Inc. (NASDAQ:FELE).
How are hedge funds trading Franklin Electric Co., Inc. (NASDAQ:FELE)?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the second quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in FELE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
More specifically, Impax Asset Management was the largest shareholder of Franklin Electric Co., Inc. (NASDAQ:FELE), with a stake worth $140.1 million reported as of the end of September. Trailing Impax Asset Management was Royce & Associates, which amassed a stake valued at $48.8 million. GAMCO Investors, AQR Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Franklin Electric Co., Inc. (NASDAQ:FELE), around 1.82% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to FELE.
Due to the fact that Franklin Electric Co., Inc. (NASDAQ:FELE) has experienced declining sentiment from hedge fund managers, it's safe to say that there were a few hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest position of the 750 funds tracked by Insider Monkey, comprising about $3.6 million in stock. David Harding's fund, Winton Capital Management, also sold off its stock, about $1.8 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Franklin Electric Co., Inc. (NASDAQ:FELE). We will take a look at Hilltop Holdings Inc. (NYSE:HTH), Rapid7 Inc (NASDAQ:RPD), Genworth Financial Inc (NYSE:GNW), and Artisan Partners Asset Management Inc (NYSE:APAM). This group of stocks' market caps are closest to FELE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTH,19,94682,1 RPD,23,227036,-2 GNW,29,266769,7 APAM,13,206432,-2 Average,21,198730,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $216 million in FELE's case. Genworth Financial Inc (NYSE:GNW) is the most popular stock in this table. On the other hand Artisan Partners Asset Management Inc (NYSE:APAM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Franklin Electric Co., Inc. (NASDAQ:FELE) is even less popular than APAM. Hedge funds clearly dropped the ball on FELE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FELE as the stock returned 16.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.