Is BEN A Good Stock To Buy According To Hedge Funds?

In this article you are going to find out whether hedge funds think Franklin Resources, Inc. (NYSE:BEN) 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.

Is BEN a good stock to buy? Prominent investors were becoming less confident. The number of long hedge fund bets retreated by 3 recently. Franklin Resources, Inc. (NYSE:BEN) was in 33 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 39. Our calculations also showed that BEN isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Gelband of ExodusPoint Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s review the new hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).

Do Hedge Funds Think BEN Is A Good Stock To Buy Now?

At third quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2020. By comparison, 37 hedge funds held shares or bullish call options in BEN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is BEN A Good Stock To Buy?

More specifically, Abrams Capital Management was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $166.9 million reported as of the end of September. Trailing Abrams Capital Management was Polaris Capital Management, which amassed a stake valued at $30.3 million. Azora Capital, Citadel Investment Group, and AQR Capital Management 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 Abrams Capital Management allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 5.28% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, earmarking 3.16 percent of its 13F equity portfolio to BEN.

Because Franklin Resources, Inc. (NYSE:BEN) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $1.8 million in stock. Qing Li’s fund, Sciencast Management, also dumped its stock, about $1.4 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). We will take a look at ICON Public Limited Company (NASDAQ:ICLR), Entegris Inc (NASDAQ:ENTG), Annaly Capital Management, Inc. (NYSE:NLY), Raymond James Financial, Inc. (NYSE:RJF), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Essential Utilities Inc (NYSE:WTRG), and Fastly, Inc. (NYSE:FSLY). This group of stocks’ market values match BEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICLR 24 621133 0
ENTG 25 1061024 -3
NLY 27 337862 6
RJF 28 449873 -7
TEVA 33 916185 2
WTRG 21 545124 6
FSLY 22 1685865 -5
Average 25.7 802438 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $802 million. That figure was $415 million in BEN’s case. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 21 bullish hedge fund positions. Franklin Resources, Inc. (NYSE:BEN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BEN is 77.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on BEN as the stock returned 22.9% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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