"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on PROS Holdings, Inc. (NYSE:PRO) in order to identify whether reputable and successful top money managers continue to believe in its potential.
PROS Holdings, Inc. (NYSE:PRO) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. PRO investors should pay attention to a decrease in hedge fund interest in recent months. There were 19 hedge funds in our database with PRO holdings at the end of the previous quarter. Our calculations also showed that PRO isn't among the 30 most popular stocks among hedge funds (view 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 gander at the fresh hedge fund action encompassing PROS Holdings, Inc. (NYSE:PRO).
Hedge fund activity in PROS Holdings, Inc. (NYSE:PRO)
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in PRO a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in PROS Holdings, Inc. (NYSE:PRO), which was worth $63.1 million at the end of the second quarter. On the second spot was Whetstone Capital Advisors which amassed $41 million worth of shares. Moreover, Shannon River Fund Management, Millennium Management, and Two Sigma Advisors were also bullish on PROS Holdings, Inc. (NYSE:PRO), allocating a large percentage of their portfolios to this stock.
Since PROS Holdings, Inc. (NYSE:PRO) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of money managers that slashed their positions entirely by the end of the second quarter. At the top of the heap, Ken Griffin's Citadel Investment Group dropped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $72.4 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund said goodbye to about $30.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to PROS Holdings, Inc. (NYSE:PRO). We will take a look at Peabody Energy Corporation (NYSE:BTU), Apergy Corporation (NYSE:APY), Colony Capital Inc (NYSE:CLNY), and International Bancshares Corporation (NASDAQ:IBOC). This group of stocks' market caps resemble PRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BTU,31,1270777,4 APY,15,122603,3 CLNY,16,345983,-7 IBOC,18,147617,4 Average,20,471745,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $223 million in PRO's case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Apergy Corporation (NYSE:APY) is the least popular one with only 15 bullish hedge fund positions. PROS Holdings, Inc. (NYSE:PRO) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PRO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PRO investors were disappointed as the stock returned -5.8% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.