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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether ProAssurance Corporation (NYSE:PRA) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
ProAssurance Corporation (NYSE:PRA) was in 18 hedge funds’ portfolios at the end of the fourth quarter of 2019. PRA investors should be aware of an increase in hedge fund sentiment in recent months. There were 15 hedge funds in our database with PRA holdings at the end of the previous quarter. Our calculations also showed that PRA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ric Dillon of Diamond Hill Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to view the latest hedge fund action encompassing ProAssurance Corporation (NYSE:PRA).
Hedge fund activity in ProAssurance Corporation (NYSE:PRA)
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PRA over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ProAssurance Corporation (NYSE:PRA) was held by Royce & Associates, which reported holding $66.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $36.9 million position. Other investors bullish on the company included Diamond Hill Capital, Polar Capital, and GLG Partners. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to ProAssurance Corporation (NYSE:PRA), around 0.8% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.6 percent of its 13F equity portfolio to PRA.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Winton Capital Management, managed by David Harding, initiated the most valuable position in ProAssurance Corporation (NYSE:PRA). Winton Capital Management had $1.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new PRA investors: D. E. Shaw’s D E Shaw, Paul Tudor Jones’s Tudor Investment Corp, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to ProAssurance Corporation (NYSE:PRA). We will take a look at Four Corners Property Trust, Inc. (NYSE:FCPT), Coeur d’Alene Mines Corporation (NYSE:CDE), Harmony Gold Mining Co. (NYSE:HMY), and United States Steel Corporation (NYSE:X). All of these stocks’ market caps match PRA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FCPT | 15 | 91164 | -3 |
| CDE | 15 | 73570 | 0 |
| HMY | 12 | 79446 | 2 |
| X | 26 | 179182 | 6 |
| Average | 17 | 105841 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $189 million in PRA’s case. United States Steel Corporation (NYSE:X) is the most popular stock in this table. On the other hand Harmony Gold Mining Co. (NYSE:HMY) is the least popular one with only 12 bullish hedge fund positions. ProAssurance Corporation (NYSE:PRA) 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 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately PRA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRA were disappointed as the stock returned -36.2% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
