Franklin Resources, Inc. (BEN): Are Hedge Funds Right About This Stock?

The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Franklin Resources, Inc. (NYSE:BEN), and what that likely means for the prospects of the company and its stock.

Is Franklin Resources, Inc. (NYSE:BEN) a cheap stock to buy now? Investors who are in the know are buying. The number of long hedge fund bets improved by 2 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Baker Hughes Incorporated (NYSE:BHI), Hilton Worldwide Holdings Inc (NYSE:HLT), and Discover Financial Services (NYSE:DFS) to gather more data points.

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Keeping this in mind, let’s take a glance at the recent action surrounding Franklin Resources, Inc. (NYSE:BEN).

How are hedge funds trading Franklin Resources, Inc. (NYSE:BEN)?

At Q3’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathon Jacobson’s Highfields Capital Management has the number one position in Franklin Resources, Inc. (NYSE:BEN), worth close to $643.3 million, comprising 5.7% of its total 13F portfolio. The second largest stake is held by Pzena Investment Management, led by Richard S. Pzena, holding a $288 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Mason Hawkins’ Southeastern Asset Management, David Harding’s Winton Capital Management and David Winters’ Wintergreen Advisers.

As industrywide interest jumped, specific money managers have been driving this bullishness. Southpoint Capital Advisors, managed by John Smith Clark, assembled the largest call position in Franklin Resources, Inc. (NYSE:BEN). Southpoint Capital Advisors had $37.3 million invested in the company at the end of the quarter. Matthew Sidman’s Three Bays Capital also made a $37.3 million investment in the stock during the quarter. The other funds with brand new BEN positions are Paul Orlin and Alex Porter’s Amici Capital, Gregg Moskowitz’s Interval Partners, and Paul Orlin and Alex Porter’s Amici Capital.

Let’s now review hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). We will take a look at Baker Hughes Incorporated (NYSE:BHI), Hilton Worldwide Holdings Inc (NYSE:HLT), Discover Financial Services (NYSE:DFS), and Waste Management, Inc. (NYSE:WM). This group of stocks’ market caps are similar to BEN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHI 53 3013440 -20
HLT 51 1488094 0
DFS 52 1900604 7
WM 31 1359476 0

As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $1940 million. That figure was $1811 million in BEN’s case. Baker Hughes Incorporated (NYSE:BHI) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 31 bullish hedge fund positions. Franklin Resources, Inc. (NYSE:BEN) 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. In this regard BHI might be a better candidate to consider a long position.