How do we determine whether Prothena Corporation plc (NASDAQ:PRTA) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Prothena Corporation plc (NASDAQ:PRTA) the right pick for your portfolio? Money managers are getting less bullish. The number of long hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that PRTA isn't among the 30 most popular stocks among hedge funds. PRTA was in 13 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 14 hedge funds in our database with PRTA positions at the end of the previous quarter.
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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's check out the fresh hedge fund action encompassing Prothena Corporation plc (NASDAQ:PRTA).
What does the smart money think about Prothena Corporation plc (NASDAQ:PRTA)?
Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in PRTA a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Neil Woodford's Woodford Investment Management has the number one position in Prothena Corporation plc (NASDAQ:PRTA), worth close to $122.8 million, corresponding to 10.6% of its total 13F portfolio. On Woodford Investment Management's heels is Scopia Capital, led by Matt Sirovich and Jeremy Mindich, holding a $47.6 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise Ken Griffin's Citadel Investment Group, William Leland Edwards's Palo Alto Investors and Oleg Nodelman's EcoR1 Capital.
Seeing as Prothena Corporation plc (NASDAQ:PRTA) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedgies that decided to sell off their entire stakes heading into Q3. Intriguingly, Jim Simons's Renaissance Technologies dumped the largest position of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $0.8 million in stock, and Cliff Asness's AQR Capital Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let's now review hedge fund activity in other stocks similar to Prothena Corporation plc (NASDAQ:PRTA). These stocks are Kimbell Royalty Partners, LP (NYSE:KRP), Mistras Group, Inc. (NYSE:MG), Harmonic Inc (NASDAQ:HLIT), and GlycoMimetics, Inc. (NASDAQ:GLYC). This group of 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 KRP,7,10819,-2 MG,12,29477,-1 HLIT,13,59986,1 GLYC,10,38363,0 Average,10.5,34661,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $210 million in PRTA's case. Harmonic Inc (NASDAQ:HLIT) is the most popular stock in this table. On the other hand Kimbell Royalty Partners, LP (NYSE:KRP) is the least popular one with only 7 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. 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 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 PRTA wasn't nearly as popular as these 15 stock and hedge funds that were betting on PRTA were disappointed as the stock returned 4.9% 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.