Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Franklin Resources, Inc. (NYSE:BEN) was in 35 hedge funds’ portfolios at the end of September. BEN has experienced an increase in activity from the world’s largest hedge funds recently. There were 25 hedge funds in our database with BEN positions at the end of the previous quarter. Our calculations also showed that BEN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Abrams of Abrams Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a glance at the key hedge fund action regarding Franklin Resources, Inc. (NYSE:BEN).
How have hedgies been trading Franklin Resources, Inc. (NYSE:BEN)?
At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BEN over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Franklin Resources, Inc. (NYSE:BEN) was held by Abrams Capital Management, which reported holding $282 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $64.4 million position. Other investors bullish on the company included Millennium Management, Polaris Capital Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 7.9% of its 13F portfolio. Moerus Capital Management is also relatively very bullish on the stock, setting aside 7.21 percent of its 13F equity portfolio to BEN.
As one would reasonably expect, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most valuable position in Franklin Resources, Inc. (NYSE:BEN). Millennium Management had $47.3 million invested in the company at the end of the quarter. Ray Dalio’s Bridgewater Associates also initiated a $13 million position during the quarter. The other funds with brand new BEN positions are Scott Wallace’s Wallace Capital Management, Lee Ainslie’s Maverick Capital, and Brandon Haley’s Holocene Advisors.
Let’s also examine hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). These stocks are Darden Restaurants, Inc. (NYSE:DRI), Dover Corporation (NYSE:DOV), Align Technology, Inc. (NASDAQ:ALGN), and MGM Resorts International (NYSE:MGM). All of these stocks’ market caps match BEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DRI | 28 | 812020 | 4 |
| DOV | 30 | 731406 | -2 |
| ALGN | 34 | 1496709 | -7 |
| MGM | 48 | 2194471 | 13 |
| Average | 35 | 1308652 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1309 million. That figure was $604 million in BEN’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Darden Restaurants, Inc. (NYSE:DRI) is the least popular one with only 28 bullish hedge fund positions. Franklin Resources, Inc. (NYSE:BEN) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BEN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BEN investors were disappointed as the stock returned -9.5% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
