It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in PRA Health Sciences Inc (NASDAQ:PRAH).
PRA Health Sciences Inc (NASDAQ:PRAH) investors should be aware of an increase in hedge fund sentiment in recent months. Our calculations also showed that prah isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to take a look at the new hedge fund action encompassing PRA Health Sciences Inc (NASDAQ:PRAH).
How are hedge funds trading PRA Health Sciences Inc (NASDAQ:PRAH)?
At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in PRAH a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in PRA Health Sciences Inc (NASDAQ:PRAH), which was worth $199 million at the end of the first quarter. On the second spot was Polar Capital which amassed $54.4 million worth of shares. Moreover, Citadel Investment Group, Rock Springs Capital Management, and Redmile Group were also bullish on PRA Health Sciences Inc (NASDAQ:PRAH), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in PRA Health Sciences Inc (NASDAQ:PRAH). Arrowstreet Capital had $3.4 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $2.3 million position during the quarter. The other funds with brand new PRAH positions are Jeffrey Talpins’s Element Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s also examine 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 Ceridian HCM Holding Inc. (NYSE:CDAY), Universal Display Corporation (NASDAQ:OLED), Sealed Air Corporation (NYSE:SEE), and Liberty Property Trust (NYSE:LPT). This group of stocks’ market values are similar to PRAH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $412 million in PRAH’s case. Ceridian HCM Holding Inc. (NYSE:CDAY) is the most popular stock in this table. On the other hand Universal Display Corporation (NASDAQ:OLED) is the least popular one with only 18 bullish hedge fund positions. PRA Health Sciences Inc (NASDAQ:PRAH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 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 -20.9% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.