During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of PRA Group, Inc. (NASDAQ:PRAA) and see how the stock is affected by the recent hedge fund activity.
Is PRA Group, Inc. (NASDAQ:PRAA) worth your attention right now? The smart money is in an optimistic mood. The number of bullish hedge fund positions inched up by 3 in recent months. Our calculations also showed that praa isn’t among the 30 most popular stocks among hedge funds.
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 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 32 percentage points since May 2014 through March 12, 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.
We’re going to go over the new hedge fund action encompassing PRA Group, Inc. (NASDAQ:PRAA).
How have hedgies been trading PRA Group, Inc. (NASDAQ:PRAA)?
Heading into the first quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in PRAA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions)
The largest stake in PRA Group, Inc. (NASDAQ:PRAA) was held by BloombergSen, which reported holding $42.5 million worth of stock at the end of December. It was followed by Water Street Capital with a $16 million position. Other investors bullish on the company included Millennium Management, Maverick Capital, and Renaissance Technologies.
Consequently, specific money managers were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, established the largest position in PRA Group, Inc. (NASDAQ:PRAA). Renaissance Technologies had $4.7 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $3.7 million investment in the stock during the quarter. The other funds with brand new PRAA positions are Ken Griffin’s Citadel Investment Group, Alec Litowitz and Ross Laser’s Magnetar Capital, and Brandon Haley’s Holocene Advisors.
Let’s also examine hedge fund activity in other stocks similar to PRA Group, Inc. (NASDAQ:PRAA). These stocks are Heritage Financial Corporation (NASDAQ:HFWA), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), Evoqua Water Technologies Corp. (NYSE:AQUA), and James River Group Holdings Ltd (NASDAQ:JRVR). This group of stocks’ market valuations resemble PRAA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HFWA | 8 | 57644 | 2 |
| HMHC | 19 | 283998 | 6 |
| AQUA | 12 | 82604 | 1 |
| JRVR | 10 | 37026 | 2 |
| Average | 12.25 | 115318 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $87 million in PRAA’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 8 bullish hedge fund positions. PRA Group, Inc. (NASDAQ:PRAA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PRAA wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); PRAA investors were disappointed as the stock returned 12.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
