How do you pick the next stock to invest in? One way would be to spend hours 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 Electric Co., Inc. (NASDAQ:FELE).
Franklin Electric Co., Inc. (NASDAQ:FELE) was in 15 hedge funds’ portfolios at the end of the first quarter of 2019. FELE has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 9 hedge funds in our database with FELE holdings at the end of the previous quarter. Our calculations also showed that fele isn’t among the 30 most popular stocks among hedge funds.
In the eyes of most market participants, hedge funds are perceived as underperforming, outdated financial vehicles of yesteryear. While there are over 8000 funds trading at the moment, We look at the crème de la crème of this club, approximately 750 funds. Most estimates calculate that this group of people manage the lion’s share of the smart money’s total asset base, and by watching their top picks, Insider Monkey has determined several investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per year since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).
We’re going to analyze the latest hedge fund action encompassing Franklin Electric Co., Inc. (NASDAQ:FELE).
What does smart money think about Franklin Electric Co., Inc. (NASDAQ:FELE)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in FELE 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, Impax Asset Management held the most valuable stake in Franklin Electric Co., Inc. (NASDAQ:FELE), which was worth $133.3 million at the end of the first quarter. On the second spot was Royce & Associates which amassed $60.4 million worth of shares. Moreover, GAMCO Investors, Millennium Management, and Arrowstreet Capital were also bullish on Franklin Electric Co., Inc. (NASDAQ:FELE), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Franklin Electric Co., Inc. (NASDAQ:FELE). Arrowstreet Capital had $3.8 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $1.3 million position during the quarter. The other funds with brand new FELE positions are Jim Simons’s Renaissance Technologies, Benjamin A. Smith’s Laurion Capital Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s now review hedge fund activity in other stocks similar to Franklin Electric Co., Inc. (NASDAQ:FELE). We will take a look at First Financial Bancorp (NASDAQ:FFBC), Resideo Technologies, Inc. (NYSE:REZI), II-VI, Inc. (NASDAQ:IIVI), and Sogou Inc. (NYSE:SOGO). This group of stocks’ market caps are similar to FELE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FFBC | 8 | 19934 | 2 |
| REZI | 32 | 393327 | -3 |
| IIVI | 22 | 115512 | 0 |
| SOGO | 8 | 6859 | 2 |
| Average | 17.5 | 133908 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $232 million in FELE’s case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand First Financial Bancorp (NASDAQ:FFBC) is the least popular one with only 8 bullish hedge fund positions. Franklin Electric Co., Inc. (NASDAQ:FELE) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FELE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FELE investors were disappointed as the stock returned -9.9% 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
