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We at Insider Monkey have gone over 817 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of ProAssurance Corporation (NYSE:PRA) based on that data.
Is PRA a good stock to buy now? Prominent investors were taking a bearish view. The number of long hedge fund bets retreated by 1 lately. ProAssurance Corporation (NYSE:PRA) was in 16 hedge funds' portfolios at the end of September. The all time high for this statistic is 18. Our calculations also showed that PRA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 17 hedge funds in our database with PRA positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's take a glance at the key hedge fund action encompassing ProAssurance Corporation (NYSE:PRA).
Do Hedge Funds Think PRA Is A Good Stock To Buy Now?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PRA over the last 21 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in ProAssurance Corporation (NYSE:PRA). Diamond Hill Capital has a $38.1 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which holds a $23.5 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Renaissance Technologies, Brian Ashford-Russell and Tim Woolley's Polar Capital and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Highline Capital Management allocated the biggest weight to ProAssurance Corporation (NYSE:PRA), around 1.29% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to PRA.
Because ProAssurance Corporation (NYSE:PRA) has witnessed falling interest from hedge fund managers, we can see that there were a few funds who were dropping their positions entirely heading into Q4. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the largest position of the 750 funds followed by Insider Monkey, totaling close to $0.8 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $0.4 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to ProAssurance Corporation (NYSE:PRA). We will take a look at Vericel Corp (NASDAQ:VCEL), Morphic Holding, Inc. (NASDAQ:MORF), Cango Inc. (NYSE:CANG), Diversified Healthcare Trust (NASDAQ:DHC), General American Investors Company, Inc. (NYSE:GAM), Sprott Inc. (NYSE:SII), and Alector, Inc. (NASDAQ:ALEC). This group of stocks' market valuations are similar to PRA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VCEL,20,123596,3 MORF,8,112234,1 CANG,2,254,1 DHC,12,25000,-2 GAM,4,28358,1 SII,14,103508,6 ALEC,24,124557,-5 Average,12,73930,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $116 million in PRA's case. Alector, Inc. (NASDAQ:ALEC) is the most popular stock in this table. On the other hand Cango Inc. (NYSE:CANG) is the least popular one with only 2 bullish hedge fund positions. ProAssurance Corporation (NYSE:PRA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRA is 62.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on PRA as the stock returned 16% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.