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Hedge Funds Have Never Been This Bullish On Fabrinet (FN)

The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Fabrinet (NYSE:FN), and what that likely means for the prospects of the company and its stock.

Fabrinet (NYSE:FN) has experienced an increase in support from the world’s most elite money managers of late. FN was in 25 hedge funds’ portfolios at the end of the second quarter of 2019. There were 20 hedge funds in our database with FN holdings at the end of the previous quarter. Our calculations also showed that FN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Cohen, Point72 Asset Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action regarding Fabrinet (NYSE:FN).

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

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FN over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with FN Positions

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the number one position in Fabrinet (NYSE:FN), worth close to $32.7 million, corresponding to 0.3% of its total 13F portfolio. The second largest stake is held by Point72 Asset Management, managed by Steve Cohen, which holds a $27.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions comprise Ken Griffin’s Citadel Investment Group, Anand Parekh’s Alyeska Investment Group and Steven Baughman’s Divisar Capital.

Consequently, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the most valuable position in Fabrinet (NYSE:FN). Point72 Asset Management had $27.1 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $24.5 million position during the quarter. The following funds were also among the new FN investors: Charles Clough’s Clough Capital Partners, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Fabrinet (NYSE:FN). We will take a look at Dycom Industries, Inc. (NYSE:DY), Allakos Inc. (NASDAQ:ALLK), Veoneer, Inc. (NYSE:VNE), and Northwest Bancshares, Inc. (NASDAQ:NWBI). This group of stocks’ market values match FN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DY 17 67705 0
ALLK 8 176357 -1
VNE 12 204221 4
NWBI 13 69252 2
Average 12.5 129384 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $170 million in FN’s case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Fabrinet (NYSE:FN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on FN, though not to the same extent, as the stock returned 5.3% during the third quarter and outperformed the market as well.

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

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