We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PRA Health Sciences Inc (NASDAQ:PRAH).
PRA Health Sciences Inc (NASDAQ:PRAH) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. PRAH was in 25 hedge funds' portfolios at the end of June. There were 28 hedge funds in our database with PRAH positions at the end of the previous quarter. Our calculations also showed that PRAH isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the recent hedge fund action surrounding PRA Health Sciences Inc (NASDAQ:PRAH).
Hedge fund activity in PRA Health Sciences Inc (NASDAQ:PRAH)
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the first quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in PRAH a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of PRA Health Sciences Inc (NASDAQ:PRAH), with a stake worth $194.7 million reported as of the end of March. Trailing AQR Capital Management was Marshall Wace LLP, which amassed a stake valued at $27 million. Rock Springs Capital Management, Fisher Asset Management, and Sloane Robinson Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that PRA Health Sciences Inc (NASDAQ:PRAH) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few fund managers that elected to cut their entire stakes by the end of the second quarter. Intriguingly, Brian Ashford-Russell and Tim Woolley's Polar Capital dumped the largest position of the 750 funds watched by Insider Monkey, worth an estimated $54.4 million in stock, and Jeremy Green's Redmile Group was right behind this move, as the fund sold off about $19.2 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PRA Health Sciences Inc (NASDAQ:PRAH) but similarly valued. These stocks are Gerdau SA (NYSE:GGB), Exelixis, Inc. (NASDAQ:EXEL), New Residential Investment Corp (NYSE:NRZ), and Reliance Steel & Aluminum Co. (NYSE:RS). This group of stocks' market caps are similar to PRAH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GGB,7,117146,-3 EXEL,21,808994,-3 NRZ,16,155738,-2 RS,19,287950,-4 Average,15.75,342457,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $341 million in PRAH's case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks PRA Health Sciences Inc (NASDAQ:PRAH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRAH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PRAH were disappointed as the stock returned 0.1% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.