Is Prosperity Bancshares, Inc. (NYSE:PB) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Prosperity Bancshares, Inc. (NYSE:PB) has seen an increase in hedge fund interest recently. PB was in 16 hedge funds' portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with PB holdings at the end of the previous quarter. Our calculations also showed that PB isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
Let's view the fresh hedge fund action surrounding Prosperity Bancshares, Inc. (NYSE:PB).
What have hedge funds been doing with Prosperity Bancshares, Inc. (NYSE:PB)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 78% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PB over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of Prosperity Bancshares, Inc. (NYSE:PB), with a stake worth $33.6 million reported as of the end of March. Trailing Millennium Management was Fisher Asset Management, which amassed a stake valued at $23.1 million. Citadel Investment Group, Arrowstreet Capital, and Third Avenue Management were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Prosperity Bancshares, Inc. (NYSE:PB) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Prosperity Bancshares, Inc. (NYSE:PB). Arrowstreet Capital had $8.8 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $4.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Cliff Asness's AQR Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Benjamin A. Smith's Laurion Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Prosperity Bancshares, Inc. (NYSE:PB) but similarly valued. These stocks are Clarivate Analytics Plc (NYSE:CCC), Kirby Corporation (NYSE:KEX), PS Business Parks Inc (NYSE:PSB), and Integra Lifesciences Holdings Corp (NASDAQ:IART). All of these stocks' market caps are similar to PB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCC,21,437169,-1 KEX,23,630317,4 PSB,14,62359,2 IART,21,165189,2 Average,19.75,323759,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $108 million in PB's case. Kirby Corporation (NYSE:KEX) is the most popular stock in this table. On the other hand PS Business Parks Inc (NYSE:PSB) is the least popular one with only 14 bullish hedge fund positions. Prosperity Bancshares, Inc. (NYSE:PB) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on PB as the stock returned 7.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.