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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards PROS Holdings, Inc. (NYSE:PRO).
PROS Holdings, Inc. (NYSE:PRO) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. PRO was in 20 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with PRO holdings at the end of the previous quarter. Our calculations also showed that PRO 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.
William Graves of Boardman Bay 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. Now let’s take a look at the new hedge fund action regarding PROS Holdings, Inc. (NYSE:PRO).
How have hedgies been trading PROS Holdings, Inc. (NYSE:PRO)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in PRO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the largest position in PROS Holdings, Inc. (NYSE:PRO), worth close to $67.2 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Brett Barakett of Tremblant Capital, with a $54.8 million position; 2.7% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass Brian Ashford-Russell and Tim Woolley’s Polar Capital, David Atterbury’s Whetstone Capital Advisors and Spencer M. Waxman’s Shannon River Fund Management. In terms of the portfolio weights assigned to each position Whetstone Capital Advisors allocated the biggest weight to PROS Holdings, Inc. (NYSE:PRO), around 11.04% of its 13F portfolio. Akaris Global Partners is also relatively very bullish on the stock, dishing out 9.19 percent of its 13F equity portfolio to PRO.
Since PROS Holdings, Inc. (NYSE:PRO) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of fund managers that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at close to $15.3 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $13.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 7 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to PROS Holdings, Inc. (NYSE:PRO). These stocks are Advanced Drainage Systems, Inc. (NYSE:WMS), Fluor Corporation (NYSE:FLR), Commercial Metals Company (NYSE:CMC), and Pattern Energy Group Inc (NASDAQ:PEGI). This group of stocks’ market caps are similar to PRO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMS | 25 | 486613 | -2 |
| FLR | 24 | 274625 | 4 |
| CMC | 27 | 265495 | 7 |
| PEGI | 22 | 103268 | 8 |
| Average | 24.5 | 282500 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $273 million in PRO’s case. Commercial Metals Company (NYSE:CMC) is the most popular stock in this table. On the other hand Pattern Energy Group Inc (NASDAQ:PEGI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks PROS Holdings, Inc. (NYSE:PRO) is even less popular than PEGI. Hedge funds dodged a bullet by taking a bearish stance towards PRO. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 4.2 percentage points. Unfortunately PRO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PRO investors were disappointed as the stock returned -51.5% 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 most of these stocks already outperformed the market so far in 2020.
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.
