Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at ProSight Global, Inc. (NYSE:PROS) from the perspective of those elite funds.
ProSight Global, Inc. (NYSE:PROS) shareholders have witnessed an increase in hedge fund interest of late. PROS was in 6 hedge funds' portfolios at the end of September. There were 0 hedge funds in our database with PROS positions at the end of the previous quarter. Our calculations also showed that PROS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_340081" align="alignnone" width="600"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's go over the new hedge fund action surrounding ProSight Global, Inc. (NYSE:PROS).
How have hedgies been trading ProSight Global, Inc. (NYSE:PROS)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6 from the second quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in PROS a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in ProSight Global, Inc. (NYSE:PROS), which was worth $6.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $6 million worth of shares. Point72 Asset Management, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position DSAM Partners allocated the biggest weight to ProSight Global, Inc. (NYSE:PROS), around 0.06% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to PROS.
As industrywide interest jumped, key money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most outsized position in ProSight Global, Inc. (NYSE:PROS). Adage Capital Management had $6.2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $6 million investment in the stock during the quarter. The other funds with brand new PROS positions are Steve Cohen's Point72 Asset Management, Ken Griffin's Citadel Investment Group, and John Overdeck and David Siegel's Two Sigma Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as ProSight Global, Inc. (NYSE:PROS) but similarly valued. These stocks are Baytex Energy Corp (NYSE:BTE), Systemax Inc. (NYSE:SYX), Rudolph Technologies Inc (NYSE:RTEC), and Westlake Chemical Partners LP (NYSE:WLKP). This group of stocks' market valuations resemble PROS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BTE,9,41900,2 SYX,11,20690,0 RTEC,10,75539,2 WLKP,4,5639,1 Average,8.5,35942,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $16 million in PROS's case. Systemax Inc. (NYSE:SYX) is the most popular stock in this table. On the other hand Westlake Chemical Partners LP (NYSE:WLKP) is the least popular one with only 4 bullish hedge fund positions. ProSight Global, Inc. (NYSE:PROS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PROS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PROS investors were disappointed as the stock returned -11.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.