Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Franklin Electric Co., Inc. (NASDAQ:FELE).
Franklin Electric Co., Inc. (NASDAQ:FELE) was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. FELE investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 15 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 (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action surrounding Franklin Electric Co., Inc. (NASDAQ:FELE).
What have hedge funds been doing with Franklin Electric Co., Inc. (NASDAQ:FELE)?
At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in FELE a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Franklin Electric Co., Inc. (NASDAQ:FELE) was held by Impax Asset Management, which reported holding $136.5 million worth of stock at the end of March. It was followed by Royce & Associates with a $50.1 million position. Other investors bullish on the company included GAMCO Investors, AQR Capital Management, and Millennium Management.
Since Franklin Electric Co., Inc. (NASDAQ:FELE) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of funds that decided to sell off their positions entirely last quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, valued at close to $0.6 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund dumped about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Franklin Electric Co., Inc. (NASDAQ:FELE) but similarly valued. These stocks are Advanced Energy Industries, Inc. (NASDAQ:AEIS), Werner Enterprises, Inc. (NASDAQ:WERN), BEST Inc. (NYSE:BEST), and JELD-WEN Holding, Inc. (NYSE:JELD). This group of stocks’ market values match FELE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEIS | 14 | 138830 | -3 |
| WERN | 15 | 111134 | -1 |
| BEST | 13 | 49071 | -3 |
| JELD | 16 | 366014 | -5 |
| Average | 14.5 | 166262 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $225 million in FELE’s case. JELD-WEN Holding, Inc. (NYSE:JELD) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 13 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 1% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
