How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Franklin Covey Co. (NYSE:FC) and determine whether hedge funds had an edge regarding this stock.
Is Franklin Covey Co. (NYSE:FC) an exceptional investment today? Money managers were taking a bullish view. The number of bullish hedge fund positions went up by 2 lately. Our calculations also showed that FC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FC was in 13 hedge funds' portfolios at the end of the first quarter of 2020. There were 11 hedge funds in our database with FC holdings at the end of the previous quarter. Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_845793" align="aligncenter" width="393"] Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 states that pay the most federal taxes to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a look at the fresh hedge fund action surrounding Franklin Covey Co. (NYSE:FC).
How are hedge funds trading Franklin Covey Co. (NYSE:FC)?
At Q1's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the fourth quarter of 2019. On the other hand, there were a total of 7 hedge funds with a bullish position in FC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Franklin Covey Co. (NYSE:FC), which was worth $5.2 million at the end of the third quarter. On the second spot was Osmium Partners which amassed $3.2 million worth of shares. Marshall Wace LLP, Citadel Investment Group, and Arrowstreet Capital 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 Osmium Partners allocated the biggest weight to Franklin Covey Co. (NYSE:FC), around 0.76% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to FC.
As industrywide interest jumped, key hedge funds have jumped into Franklin Covey Co. (NYSE:FC) headfirst. GLG Partners, managed by Noam Gottesman, assembled the most outsized position in Franklin Covey Co. (NYSE:FC). GLG Partners had $0.7 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $0.5 million investment in the stock during the quarter. The only other fund with a new position in the stock is Greg Eisner's Engineers Gate Manager.
Let's go over hedge fund activity in other stocks similar to Franklin Covey Co. (NYSE:FC). We will take a look at Tuscan Holdings Corp. II (NASDAQ:THCA), Garrett Motion Inc. (NYSE:GTX), Unifi, Inc. (NYSE:UFI), and Aesthetic Medical International Holdings Group Ltd. (NASDAQ:AIH). This group of stocks' market values match FC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THCA,9,31456,0 GTX,21,82421,-17 UFI,14,47158,0 AIH,1,525,1 Average,11.25,40390,-4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $15 million in FC's case. Garrett Motion Inc. (NYSE:GTX) is the most popular stock in this table. On the other hand Aesthetic Medical International Holdings Group Ltd. (NASDAQ:AIH) is the least popular one with only 1 bullish hedge fund positions. Franklin Covey Co. (NYSE:FC) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on FC as the stock returned 37.6% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.