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Fabrinet (FN): Hedge Funds Taking Some Chips Off The Table

In this article you are going to find out whether hedge funds think Fabrinet (NYSE:FN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Fabrinet (NYSE:FN) was in 22 hedge funds’ portfolios at the end of March. FN has experienced a decrease in support from the world’s most elite money managers in recent months. There were 25 hedge funds in our database with FN positions at the end of the previous quarter. Our calculations also showed that FN 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.

At the moment there are a lot of metrics stock traders use to analyze publicly traded companies. Two of the most under-the-radar metrics are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outclass their index-focused peers by a superb margin (see the details here).

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action regarding Fabrinet (NYSE:FN).

How are hedge funds trading Fabrinet (NYSE:FN)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in FN a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Fabrinet (NYSE:FN), which was worth $33.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $27.2 million worth of shares. Divisar Capital, Shelter Haven Capital Management, and Renaissance Technologies 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 Divisar Capital allocated the biggest weight to Fabrinet (NYSE:FN), around 6.42% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, dishing out 5.92 percent of its 13F equity portfolio to FN.

Because Fabrinet (NYSE:FN) has faced bearish sentiment from the smart money, logic holds that there is a sect of fund managers who sold off their entire stakes by the end of the first quarter. Intriguingly, Clifton S. Robbins’s Blue Harbour Group said goodbye to the biggest position of the 750 funds followed by Insider Monkey, totaling close to $46.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $4.1 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Fabrinet (NYSE:FN) but similarly valued. These stocks are Select Medical Holdings Corporation (NYSE:SEM), TC Pipelines, LP (NYSE:TCP), Associated Banc Corp (NYSE:ASB), and Paramount Group Inc (NYSE:PGRE). All of these stocks’ market caps resemble FN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SEM 18 106537 -3
TCP 2 9665 -1
ASB 16 124559 -8
PGRE 19 154841 -1
Average 13.75 98901 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $133 million in FN’s case. Paramount Group Inc (NYSE:PGRE) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Fabrinet (NYSE:FN) 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 gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. Unfortunately FN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FN were disappointed as the stock returned 21.3% during the second quarter (through June 10th) 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.

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