How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding ProAssurance Corporation (NYSE:PRA).
ProAssurance Corporation (NYSE:PRA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of September. At the end of this article we will also compare PRA to other stocks including Steelcase Inc. (NYSE:SCS), Penn National Gaming, Inc (NASDAQ:PENN), and Korn/Ferry International (NYSE:KFY) to get a better sense of its popularity.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the new hedge fund action regarding ProAssurance Corporation (NYSE:PRA).
Hedge fund activity in ProAssurance Corporation (NYSE:PRA)
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PRA over the last 17 quarters. So, let’s see 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 $66.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $42.6 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 0.9% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.61 percent of its 13F equity portfolio to PRA.
Due to the fact that ProAssurance Corporation (NYSE:PRA) has faced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who sold off their entire stakes in the third quarter. It’s worth mentioning that David E. Shaw’s D E Shaw said goodbye to the biggest position of the 750 funds followed by Insider Monkey, comprising about $1.2 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to ProAssurance Corporation (NYSE:PRA). We will take a look at Steelcase Inc. (NYSE:SCS), Penn National Gaming, Inc (NASDAQ:PENN), Korn/Ferry International (NYSE:KFY), and First Midwest Bancorp Inc (NASDAQ:FMBI). This group of stocks’ market caps are similar to PRA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCS | 21 | 120765 | 2 |
| PENN | 23 | 227001 | 3 |
| KFY | 23 | 169429 | 1 |
| FMBI | 14 | 73984 | 0 |
| Average | 20.25 | 147795 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $203 million in PRA’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 14 bullish hedge fund positions. ProAssurance Corporation (NYSE:PRA) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PRA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PRA investors were disappointed as the stock returned -6.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
