You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
PROS Holdings, Inc. (NYSE:PRO) has experienced an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that pro isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Let’s go over the new hedge fund action surrounding PROS Holdings, Inc. (NYSE:PRO).
Hedge fund activity in PROS Holdings, Inc. (NYSE:PRO)
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the fourth quarter of 2018. On the other hand, there were a total of 9 hedge funds with a bullish position in PRO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in PROS Holdings, Inc. (NYSE:PRO) was held by Daruma Asset Management, which reported holding $27.4 million worth of stock at the end of March. It was followed by Whetstone Capital Advisors with a $27.4 million position. Other investors bullish on the company included SQN Investors, Shannon River Fund Management, and Millennium Management.
As one would reasonably expect, key money managers have jumped into PROS Holdings, Inc. (NYSE:PRO) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in PROS Holdings, Inc. (NYSE:PRO). Arrowstreet Capital had $4.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $1.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Bruce Kovner’s Caxton Associates LP, and Minhua Zhang’s Weld Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PROS Holdings, Inc. (NYSE:PRO) but similarly valued. These stocks are TIER REIT, Inc. (NYSE:TIER), Knowles Corp (NYSE:KN), Marcus & Millichap Inc (NYSE:MMI), and Arch Coal, Inc. (NYSE:ARCH). This group of stocks’ market caps resemble PRO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TIER | 12 | 127254 | 5 |
| KN | 17 | 223503 | -7 |
| MMI | 12 | 132716 | -1 |
| ARCH | 28 | 326749 | 3 |
| Average | 17.25 | 202556 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $159 million in PRO’s case. Arch Coal, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand TIER REIT, Inc. (NYSE:TIER) is the least popular one with only 12 bullish hedge fund positions. PROS Holdings, Inc. (NYSE:PRO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on PRO as the stock returned 34.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
