Is Franklin Resources, Inc. (NYSE:BEN) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Franklin Resources, Inc. (NYSE:BEN) ready to rally soon? The smart money is reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 3 lately. Our calculations also showed that BEN isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to check out the recent hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).
Hedge fund activity in Franklin Resources, Inc. (NYSE:BEN)
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BEN over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Abrams Capital Management was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $340.1 million reported as of the end of March. Trailing Abrams Capital Management was Pzena Investment Management, which amassed a stake valued at $74.2 million. Polaris Capital Management, Arrowstreet Capital, and Moerus Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Franklin Resources, Inc. (NYSE:BEN) has witnessed a decline in interest from hedge fund managers, it's easy to see that there is a sect of money managers that decided to sell off their full holdings heading into Q3. At the top of the heap, James Parsons's Junto Capital Management sold off the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $28.8 million in stock. David Harding's fund, Winton Capital Management, also dropped its stock, about $20.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). These stocks are ResMed Inc. (NYSE:RMD), Plains All American Pipeline, L.P. (NYSE:PAA), ArcelorMittal (NYSE:MT), and CBRE Group, Inc. (NYSE:CBRE). This group of stocks' market values resemble BEN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RMD,10,102957,-8 PAA,11,79838,3 MT,15,247433,3 CBRE,25,1293555,-6 Average,15.25,430946,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $431 million. That figure was $637 million in BEN's case. CBRE Group, Inc. (NYSE:CBRE) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 10 bullish hedge fund positions. Franklin Resources, Inc. (NYSE:BEN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BEN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BEN were disappointed as the stock returned -16.3% during the third quarter 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.