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Did Hedge Funds Make The Right Call On Dumping Franklin Resources, Inc. (BEN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtFranklin Resources, Inc. (NYSE:BEN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Franklin Resources, Inc. (NYSE:BEN) a buy here? Money managers were getting less optimistic. The number of bullish hedge fund bets dropped by 5 recently. Our calculations also showed that BEN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Prem Watsa of Fairfax Financial Holdings

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action surrounding Franklin Resources, Inc. (NYSE:BEN).

Hedge fund activity in Franklin Resources, Inc. (NYSE:BEN)

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in BEN 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.

More specifically, Abrams Capital Management was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $162.2 million reported as of the end of September. Trailing Abrams Capital Management was Polaris Capital Management, which amassed a stake valued at $22.2 million. Arrowstreet Capital, Fairfax Financial Holdings, and Moerus Capital Management 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 Meru Capital allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 9% of its 13F portfolio. Moerus Capital Management is also relatively very bullish on the stock, dishing out 7.33 percent of its 13F equity portfolio to BEN.

Due to the fact that Franklin Resources, Inc. (NYSE:BEN) has experienced falling interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies who sold off their entire stakes last quarter. Intriguingly, Ray Dalio’s Bridgewater Associates dropped the biggest position of the 750 funds monitored by Insider Monkey, totaling about $2.7 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund cut about $2 million worth. These moves are interesting, as total hedge fund interest fell by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). We will take a look at WPP Plc (NYSE:WPP), Lyft, Inc. (NASDAQ:LYFT), Packaging Corporation Of America (NYSE:PKG), and Graco Inc. (NYSE:GGG). This group of stocks’ market values are similar to BEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPP 5 29321 -2
LYFT 31 389490 -14
PKG 23 105812 5
GGG 21 157995 0
Average 20 170655 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $171 million. That figure was $331 million in BEN’s case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand WPP Plc (NYSE:WPP) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Franklin Resources, Inc. (NYSE:BEN) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on BEN as the stock returned 25.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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