We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Prothena Corporation plc (NASDAQ:PRTA) and determine whether hedge funds skillfully traded this stock.
Prothena Corporation plc (NASDAQ:PRTA) shareholders have witnessed an increase in activity from the world's largest hedge funds of late. Prothena Corporation plc (NASDAQ:PRTA) was in 25 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 20 hedge funds in our database with PRTA positions at the end of the first quarter. Our calculations also showed that PRTA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are numerous signals stock market investors use to assess stocks. A duo of the most underrated signals are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can trounce the S&P 500 by a very impressive margin (see the details here).
Kamran Moghtaderi of Eversept Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a look at the latest hedge fund action encompassing Prothena Corporation plc (NASDAQ:PRTA).
How are hedge funds trading Prothena Corporation plc (NASDAQ:PRTA)?
At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the first quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in PRTA a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, EcoR1 Capital, managed by Oleg Nodelman, holds the biggest position in Prothena Corporation plc (NASDAQ:PRTA). EcoR1 Capital has a $98.6 million position in the stock, comprising 7.3% of its 13F portfolio. On EcoR1 Capital's heels is Samuel Isaly of OrbiMed Advisors, with a $37.1 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions consist of Jeffrey Jay and David Kroin's Great Point Partners, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management and William Leland Edwards's Palo Alto Investors. In terms of the portfolio weights assigned to each position EcoR1 Capital allocated the biggest weight to Prothena Corporation plc (NASDAQ:PRTA), around 7.28% of its 13F portfolio. Soleus Capital is also relatively very bullish on the stock, earmarking 4.02 percent of its 13F equity portfolio to PRTA.
Now, key hedge funds have been driving this bullishness. Soleus Capital, managed by Guy Levy, created the biggest position in Prothena Corporation plc (NASDAQ:PRTA). Soleus Capital had $7.1 million invested in the company at the end of the quarter. Kamran Moghtaderi's Eversept Partners also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Phill Gross and Robert Atchinson's Adage Capital Management, and Donald Sussman's Paloma Partners.
Let's check out hedge fund activity in other stocks similar to Prothena Corporation plc (NASDAQ:PRTA). We will take a look at Heidrick & Struggles International, Inc. (NASDAQ:HSII), At Home Group Inc. (NYSE:HOME), American Vanguard Corp. (NYSE:AVD), Harpoon Therapeutics, Inc. (NASDAQ:HARP), Alliance Resource Partners, L.P. (NASDAQ:ARLP), Rosetta Stone Inc (NYSE:RST), and US Concrete Inc (NASDAQ:USCR). All of these stocks' market caps match PRTA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HSII,16,81931,3 HOME,27,169749,13 AVD,10,10023,2 HARP,11,65257,0 ARLP,4,20323,0 RST,21,119001,-1 USCR,9,20183,-3 Average,14,69495,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $228 million in PRTA's case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 4 bullish hedge fund positions. Prothena Corporation plc (NASDAQ:PRTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRTA is 85.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately PRTA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on PRTA were disappointed as the stock returned -3.1% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.