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Were Hedge Funds Right About Franks International (FI)?

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Debasis Saha
·6 min read
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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Franks International NV (NYSE:FI).

Franks International NV (NYSE:FI) investors should pay attention to a decrease in hedge fund interest recently. FI was in 10 hedge funds' portfolios at the end of December. There were 11 hedge funds in our database with FI holdings at the end of the previous quarter. Our calculations also showed that FI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_256989" align="aligncenter" width="400"]

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's check out the latest hedge fund action encompassing Franks International NV (NYSE:FI).

What does smart money think about Franks International NV (NYSE:FI)?

Heading into the first quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FI over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is FI A Good Stock To Buy?
Is FI A Good Stock To Buy?

The largest stake in Franks International NV (NYSE:FI) was held by Balyasny Asset Management, which reported holding $7.1 million worth of stock at the end of September. It was followed by Adage Capital Management with a $4.6 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Balyasny Asset Management allocated the biggest weight to Franks International NV (NYSE:FI), around 0.04% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to FI.

Seeing as Franks International NV (NYSE:FI) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds who sold off their entire stakes by the end of the third quarter. It's worth mentioning that Robert Rodriguez and Steven Romick's First Pacific Advisors LLC sold off the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $2.7 million in stock, and Minhua Zhang's Weld Capital Management was right behind this move, as the fund sold off about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to Franks International NV (NYSE:FI). These stocks are Orion Engineered Carbons SA (NYSE:OEC), The Chefs Warehouse, Inc (NASDAQ:CHEF), Apollo Investment Corp. (NASDAQ:AINV), and CSW Industrials, Inc. (NASDAQ:CSWI). This group of stocks' market valuations match FI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OEC,18,227067,-2 CHEF,7,55689,-3 AINV,9,43875,-2 CSWI,16,51267,-4 Average,12.5,94475,-2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $21 million in FI's case. Orion Engineered Carbons SA (NYSE:OEC) is the most popular stock in this table. On the other hand The Chefs Warehouse, Inc (NASDAQ:CHEF) is the least popular one with only 7 bullish hedge fund positions. Franks International NV (NYSE:FI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately FI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); FI investors were disappointed as the stock returned -56.3% during the same time period 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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