These Hedge Funds Were Wrong About Franklin Resources, Inc. (BEN)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Franklin Resources, Inc. (NYSE:BEN).

Franklin Resources, Inc. (NYSE:BEN) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. BEN investors should pay attention to an increase in hedge fund interest of late. There were 32 hedge funds in our database with BEN holdings at the end of March. Our calculations also showed that BEN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are perceived as slow, old investment vehicles of the past. While there are greater than 8000 funds with their doors open at present, We hone in on the crème de la crème of this group, around 850 funds. It is estimated that this group of investors administer bulk of the smart money’s total asset base, and by tracking their inimitable picks, Insider Monkey has spotted numerous investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Abrams of Abrams Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the recent hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).

What have hedge funds been doing with Franklin Resources, Inc. (NYSE:BEN)?

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards BEN over the last 20 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

More specifically, Abrams Capital Management was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $203.8 million reported as of the end of June. Trailing Abrams Capital Management was Polaris Capital Management, which amassed a stake valued at $28.4 million. AQR Capital Management, Citadel Investment Group, and Fairfax Financial Holdings were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 6.59% of its 13F portfolio. Meru Capital is also relatively very bullish on the stock, setting aside 2.39 percent of its 13F equity portfolio to BEN.

With a general bullishness amongst the heavyweights, some big names have jumped into Franklin Resources, Inc. (NYSE:BEN) headfirst. Kopernik Global Investors, managed by David Iben, initiated the most outsized position in Franklin Resources, Inc. (NYSE:BEN). Kopernik Global Investors had $5.4 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also made a $2.8 million investment in the stock during the quarter. The other funds with brand new BEN positions are Minhua Zhang’s Weld Capital Management, Renee Yao’s Neo Ivy Capital, and Mika Toikka’s AlphaCrest Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Franklin Resources, Inc. (NYSE:BEN) but similarly valued. We will take a look at Essential Utilities Inc (NYSE:WTRG), Cincinnati Financial Corporation (NASDAQ:CINF), Hasbro, Inc. (NASDAQ:HAS), Cognex Corporation (NASDAQ:CGNX), Korea Electric Power Corporation (NYSE:KEP), W.R. Berkley Corporation (NYSE:WRB), and Celanese Corporation (NYSE:CE). This group of stocks’ market values are closest to BEN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $410 million in BEN’s case. Celanese Corporation (NYSE:CE) is the most popular stock in this table. On the other hand Korea Electric Power Corporation (NYSE:KEP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Franklin Resources, Inc. (NYSE:BEN) is more popular among hedge funds. Our overall hedge fund sentiment score for BEN is 86.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately BEN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BEN were disappointed as the stock returned -8.2% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.