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Hedge Funds Are Dumping Franklin Resources, Inc. (BEN)

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Franklin Resources, Inc. (NYSE:BEN) ready to rally soon? Money managers are taking a pessimistic view. The number of long hedge fund bets went down by 4 in recent months. Our calculations also showed that ben isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Abrams

Let’s go over the fresh hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).

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

Heading into the fourth quarter of 2018, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards BEN over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with BEN Positions

The largest stake in Franklin Resources, Inc. (NYSE:BEN) was held by Abrams Capital Management, which reported holding $302.4 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $272.5 million position. Other investors bullish on the company included Highfields Capital Management, Diamond Hill Capital, and Renaissance Technologies.

Because Franklin Resources, Inc. (NYSE:BEN) has witnessed declining sentiment from the smart money, it’s safe to say that there were a few hedgies who sold off their entire stakes last quarter. At the top of the heap, Mason Hawkins’s Southeastern Asset Management cut the biggest position of the 700 funds followed by Insider Monkey, valued at an estimated $50.2 million in stock, and Robert Joseph Caruso’s Select Equity Group was right behind this move, as the fund dumped about $27.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). We will take a look at Match Group, Inc. (NASDAQ:MTCH), WellCare Health Plans, Inc. (NYSE:WCG), D.R. Horton, Inc. (NYSE:DHI), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks’ market values resemble BEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTCH 29 937712 3
WCG 35 1713127 5
DHI 49 2084932 13
AWK 20 503256 1
Average 33.25 1309757 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1310 million. That figure was $878 million in BEN’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand American Water Works Company, Inc. (NYSE:AWK) is the least popular one with only 20 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 DHI might be a better candidate to consider a long position.

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

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