We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Franklin Resources, Inc. (NYSE:BEN) and determine whether hedge funds skillfully traded this stock.
Franklin Resources, Inc. (NYSE:BEN) shareholders have witnessed an increase in hedge fund sentiment lately. Franklin Resources, Inc. (NYSE:BEN) was in 36 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. Our calculations also showed that BEN 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.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap 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. Keeping this in mind we're going to go over the recent hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).
How are hedge funds trading Franklin Resources, Inc. (NYSE:BEN)?
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BEN 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.
More specifically, Abrams Capital Management was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $203.8 million reported as of the end of September. Trailing Abrams Capital Management was Polaris Capital Management, which amassed a stake valued at $28.4 million. AQR Capital Management, Citadel Investment Group, and Fairfax Financial Holdings 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 Abrams Capital Management allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 6.59% of its 13F portfolio. Meru Capital is also relatively very bullish on the stock, designating 2.39 percent of its 13F equity portfolio to BEN.
Now, key hedge funds were breaking ground themselves. Kopernik Global Investors, managed by David Iben, established the largest position in Franklin Resources, Inc. (NYSE:BEN). Kopernik Global Investors had $5.4 million invested in the company at the end of the quarter. Ravi Chopra's Azora Capital also initiated a $2.8 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, Renee Yao's Neo Ivy Capital, and Mika Toikka's AlphaCrest Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Franklin Resources, Inc. (NYSE:BEN) but similarly valued. We will take a look at Essential Utilities Inc (NYSE:WTRG), Cincinnati Financial Corporation (NASDAQ:CINF), Hasbro, Inc. (NASDAQ:HAS), Cognex Corporation (NASDAQ:CGNX), Korea Electric Power Corporation (NYSE:KEP), W.R. Berkley Corporation (NYSE:WRB), and Celanese Corporation (NYSE:CE). 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 WTRG,15,536751,-8 CINF,20,604548,-11 HAS,23,149844,-2 CGNX,26,266923,10 KEP,3,25664,-4 WRB,27,350226,1 CE,33,694892,4 Average,21,375550,-1.4 [/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 $376 million. That figure was $410 million in BEN's case. Celanese Corporation (NYSE:CE) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Franklin Resources, Inc. (NYSE:BEN) is more popular among hedge funds. Our overall hedge fund sentiment score for BEN is 86.7. 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately BEN wasn't nearly as popular as these 10 stocks and hedge funds that were betting on BEN were disappointed as the stock returned 1.7% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Get real-time email alerts: Follow Franklin Resources Inc (NYSE:BEN)
Disclosure: None. This article was originally published at Insider Monkey.