We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Franklin Resources, Inc. (NYSE:BEN) based on that data.
Franklin Resources, Inc. (NYSE:BEN) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 FMC Corporation (NYSE:FMC), Steris Plc (NYSE:STE), and Varian Medical Systems, Inc. (NYSE:VAR) to gather more data points. Our calculations also showed that BEN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
David Abrams of Abrams Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding Franklin Resources, Inc. (NYSE:BEN).
What does smart money think about Franklin Resources, Inc. (NYSE:BEN)?
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BEN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
The largest stake in Franklin Resources, Inc. (NYSE:BEN) was held by Abrams Capital Management, which reported holding $252.5 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $70.8 million position. Other investors bullish on the company included Millennium Management, Polaris Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Meru Capital allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 43.83% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, setting aside 7.84 percent of its 13F equity portfolio to BEN.
Due to the fact that Franklin Resources, Inc. (NYSE:BEN) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that elected to cut their entire stakes heading into Q4. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the biggest stake of the 750 funds followed by Insider Monkey, worth close to $7.3 million in stock. Lee Ainslie’s fund, Maverick Capital, also cut its stock, about $5.6 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). These stocks are FMC Corporation (NYSE:FMC), Steris Plc (NYSE:STE), Varian Medical Systems, Inc. (NYSE:VAR), and Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY). This group of stocks’ market caps are closest to BEN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $704 million. That figure was $565 million in BEN’s case. FMC Corporation (NYSE:FMC) is the most popular stock in this table. On the other hand Varian Medical Systems, Inc. (NYSE:VAR) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Franklin Resources, Inc. (NYSE:BEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately BEN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BEN were disappointed as the stock returned -31.6% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.