Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Franks International NV (NYSE:FI) from the perspective of those elite funds.
Hedge fund interest in Franks International NV (NYSE:FI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FI to other stocks including IMAX Corporation (NYSE:IMAX), Central Puerto S.A. (NYSE:CEPU), and Aimmune Therapeutics Inc (NASDAQ:AIMT) to get a better sense of its popularity.
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s analyze the recent hedge fund action surrounding Franks International NV (NYSE:FI).
What have hedge funds been doing with Franks International NV (NYSE:FI)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FI over the last 15 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, holds the biggest position in Franks International NV (NYSE:FI). First Pacific Advisors LLC has a $10 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Phill Gross and Robert Atchinson of Adage Capital Management, with a $6.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism include D. E. Shaw’s D E Shaw, Ken Griffin’s Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Judging by the fact that Franks International NV (NYSE:FI) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few money managers that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management sold off the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $1.3 million in stock. Chuck Royce’s fund, Royce & Associates, also sold off its stock, about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Franks International NV (NYSE:FI) but similarly valued. These stocks are IMAX Corporation (NYSE:IMAX), Central Puerto S.A. (NYSE:CEPU), Aimmune Therapeutics Inc (NASDAQ:AIMT), and Ambarella Inc (NASDAQ:AMBA). This group of stocks’ market valuations resemble FI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMAX | 15 | 40733 | 1 |
| CEPU | 12 | 39045 | 4 |
| AIMT | 15 | 202754 | -1 |
| AMBA | 19 | 100486 | 5 |
| Average | 15.25 | 95755 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $24 million in FI’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand Central Puerto S.A. (NYSE:CEPU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Franks International NV (NYSE:FI) is even less popular than CEPU. Hedge funds dodged a bullet by taking a bearish stance towards FI. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately FI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FI investors were disappointed as the stock returned 1.3% during the same time frame 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 the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
