It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Prosperity Bancshares, Inc. (NYSE:PB).
Is Prosperity Bancshares, Inc. (NYSE:PB) an excellent investment today? Hedge funds are reducing their bets on the stock. The number of long hedge fund positions dropped by 4 in recent months. Our calculations also showed that PB isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most stock holders, hedge funds are perceived as unimportant, outdated financial tools of the past. While there are more than 8,000 funds trading today, We choose to focus on the upper echelon of this club, about 700 funds. It is estimated that this group of investors manage most of the smart money’s total capital, and by shadowing their best stock picks, Insider Monkey has deciphered many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by 6 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
We’re going to take a look at the latest hedge fund action regarding Prosperity Bancshares, Inc. (NYSE:PB).
What have hedge funds been doing with Prosperity Bancshares, Inc. (NYSE:PB)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -40% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in PB heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Balyasny Asset Management held the most valuable stake in Prosperity Bancshares, Inc. (NYSE:PB), which was worth $34.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $25.9 million worth of shares. Moreover, Third Avenue Management, Millennium Management, and BlueCrest Capital Mgmt. were also bullish on Prosperity Bancshares, Inc. (NYSE:PB), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Prosperity Bancshares, Inc. (NYSE:PB) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that slashed their full holdings by the end of the third quarter. At the top of the heap, Noam Gottesman’s GLG Partners cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $3.7 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $2.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Prosperity Bancshares, Inc. (NYSE:PB). We will take a look at Amarin Corporation plc (NASDAQ:AMRN), Axis Capital Holdings Limited (NYSE:AXS), InterXion Holding NV (NYSE:INXN), and MGIC Investment Corporation (NYSE:MTG). This group of stocks’ market values match PB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMRN | 22 | 1152232 | 7 |
| AXS | 21 | 597310 | -3 |
| INXN | 31 | 803781 | -4 |
| MTG | 30 | 430113 | 5 |
| Average | 26 | 745859 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $746 million. That figure was $74 million in PB’s case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand Axis Capital Holdings Limited (NYSE:AXS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Prosperity Bancshares, Inc. (NYSE:PB) is even less popular than AXS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
