Did Hedge Funds Make The Right Call On Prestige Consumer Healthcare Inc. (PBH) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Prestige Consumer Healthcare Inc. (NYSE:PBH) and determine whether hedge funds skillfully traded this stock.

Prestige Consumer Healthcare Inc. (NYSE:PBH) investors should be aware of an increase in support from the world’s most elite money managers recently. Our calculations also showed that PBH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to review the recent hedge fund action encompassing Prestige Consumer Healthcare Inc. (NYSE:PBH).

What have hedge funds been doing with Prestige Consumer Healthcare Inc. (NYSE:PBH)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in PBH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Prestige Consumer Healthcare Inc. (NYSE:PBH), with a stake worth $29.9 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $23.4 million. GLG Partners, AQR Capital Management, and D E Shaw 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 Quantinno Capital allocated the biggest weight to Prestige Consumer Healthcare Inc. (NYSE:PBH), around 0.14% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to PBH.

As aggregate interest increased, key money managers were breaking ground themselves. Renaissance Technologies,  assembled the most valuable position in Prestige Consumer Healthcare Inc. (NYSE:PBH). Renaissance Technologies had $2.4 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Greg Eisner’s Engineers Gate Manager.

Let’s check out hedge fund activity in other stocks similar to Prestige Consumer Healthcare Inc. (NYSE:PBH). These stocks are Denali Therapeutics Inc. (NASDAQ:DNLI), Cathay General Bancorp (NASDAQ:CATY), AllianceBernstein Holding LP (NYSE:AB), and Fastly, Inc. (NYSE:FSLY). All of these stocks’ market caps resemble PBH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $86 million in PBH’s case. Fastly, Inc. (NYSE:FSLY) is the most popular stock in this table. On the other hand AllianceBernstein Holding LP (NYSE:AB) is the least popular one with only 7 bullish hedge fund positions. Prestige Consumer Healthcare Inc. (NYSE:PBH) is not the most popular stock in this group but hedge fund interest is still above average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately PBH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PBH were disappointed as the stock returned 2.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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