While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Franklin Resources, Inc. (NYSE:BEN).
Is Franklin Resources, Inc. (NYSE:BEN) going to take off soon? Hedge funds were in a bearish mood. The number of long hedge fund bets shrunk by 1 in recent months. Franklin Resources, Inc. (NYSE:BEN) was in 30 hedge funds' portfolios at the end of June. 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 Q2 rankings). There were 31 hedge funds in our database with BEN positions at the end of the first quarter.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Michael Price of MFP Investors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to analyze the latest hedge fund action encompassing Franklin Resources, Inc. (NYSE:BEN).
Do Hedge Funds Think BEN Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BEN over the last 24 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Franklin Resources, Inc. (NYSE:BEN), with a stake worth $34.6 million reported as of the end of June. Trailing Citadel Investment Group was Fairfax Financial Holdings, which amassed a stake valued at $32 million. MFP Investors, Schonfeld Strategic Advisors, and Millennium 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 MFP Investors allocated the biggest weight to Franklin Resources, Inc. (NYSE:BEN), around 1.54% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, earmarking 1.36 percent of its 13F equity portfolio to BEN.
Seeing as Franklin Resources, Inc. (NYSE:BEN) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there were a few money managers who were dropping their full holdings by the end of the second quarter. Intriguingly, Ric Dillon's Diamond Hill Capital dumped the largest stake of all the hedgies watched by Insider Monkey, comprising about $5.6 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $5 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Franklin Resources, Inc. (NYSE:BEN). We will take a look at Quest Diagnostics Incorporated (NYSE:DGX), Eastman Chemical Company (NYSE:EMN), Companhia Paranaense de Energia - COPEL (NYSE:ELP), NortonLifeLock Inc. (NASDAQ:NLOK), Nomura Holdings, Inc. (NYSE:NMR), Novavax, Inc. (NASDAQ:NVAX), and Arch Capital Group Ltd. (NASDAQ:ACGL). This group of stocks' market valuations match BEN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DGX,31,376501,-3 EMN,27,156403,0 ELP,13,43466,8 NLOK,36,1340848,4 NMR,7,17637,-3 NVAX,37,1172482,-1 ACGL,22,1438952,-12 Average,24.7,649470,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $649 million. That figure was $205 million in BEN's case. Novavax, Inc. (NASDAQ:NVAX) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 7 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 65.4. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately BEN wasn't nearly as popular as these 5 stocks and hedge funds that were betting on BEN were disappointed as the stock returned -5.2% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Get real-time email alerts: Follow Franklin Resources Inc (NYSE:BEN)
Disclosure: None. This article was originally published at Insider Monkey.