Hedge Funds Have Never Been More Bullish On Fabrinet (FN)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Fabrinet (NYSE:FN) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Fabrinet (NYSE:FN) has experienced an increase in activity from the world’s largest hedge funds of late. FN was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with FN positions at the end of the previous quarter. Our calculations also showed that FN 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).

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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 analyze the new hedge fund action encompassing Fabrinet (NYSE:FN).

What does smart money think about Fabrinet (NYSE:FN)?

At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FN over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Fabrinet (NYSE:FN), worth close to $49.8 million, accounting for 0.4% of its total 13F portfolio. Coming in second is Blue Harbour Group, managed by Clifton S. Robbins, which holds a $46.6 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Ken Griffin’s Citadel Investment Group, Steven Baughman’s Divisar Capital and Jerry Kochanski’s Shelter Haven Capital Management. In terms of the portfolio weights assigned to each position Shelter Haven Capital Management allocated the biggest weight to Fabrinet (NYSE:FN), around 8.09% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, designating 5.07 percent of its 13F equity portfolio to FN.

Now, specific money managers have been driving this bullishness. Shelter Haven Capital Management, managed by Jerry Kochanski, initiated the most outsized position in Fabrinet (NYSE:FN). Shelter Haven Capital Management had $16.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $4.1 million position during the quarter. The following funds were also among the new FN investors: Donald Sussman’s Paloma Partners, Benjamin A. Smith’s Laurion Capital Management, and Mika Toikka’s AlphaCrest Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Fabrinet (NYSE:FN) but similarly valued. These stocks are Steelcase Inc. (NYSE:SCS), Kontoor Brands, Inc. (NASDAQ:KTB), M.D.C. Holdings, Inc. (NYSE:MDC), and Aircastle Limited (NYSE:AYR). All of these stocks’ market caps are closest to FN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $224 million in FN’s case. Steelcase Inc. (NYSE:SCS) is the most popular stock in this table. On the other hand Kontoor Brands, Inc. (NASDAQ:KTB) is the least popular one with only 14 bullish hedge fund positions. Fabrinet (NYSE:FN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on FN, though not to the same extent, as the stock returned -19.2% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.

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.