Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards PRGX Global Inc (NASDAQ:PRGX).
Is PRGX a good stock to buy now? PRGX Global Inc (NASDAQ:PRGX) has seen a decrease in hedge fund sentiment lately. PRGX Global Inc (NASDAQ:PRGX) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 13. There were 10 hedge funds in our database with PRGX holdings at the end of June. Our calculations also showed that PRGX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the recent hedge fund action encompassing PRGX Global Inc (NASDAQ:PRGX).
Do Hedge Funds Think PRGX Is A Good Stock To Buy Now?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PRGX over the last 21 quarters. 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, Headlands Capital held the most valuable stake in PRGX Global Inc (NASDAQ:PRGX), which was worth $14 million at the end of the third quarter. On the second spot was Becker Drapkin Management which amassed $9.7 million worth of shares. Renaissance Technologies, North Run Capital, and Trellus Management Company 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 Headlands Capital allocated the biggest weight to PRGX Global Inc (NASDAQ:PRGX), around 14.86% of its 13F portfolio. North Run Capital is also relatively very bullish on the stock, dishing out 5.17 percent of its 13F equity portfolio to PRGX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified PRGX as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks similar to PRGX Global Inc (NASDAQ:PRGX). We will take a look at Intrepid Potash, Inc. (NYSE:IPI), Identiv, Inc. (NASDAQ:INVE), Bankwell Financial Group, Inc. (NASDAQ:BWFG), Orgenesis Inc. (NASDAQ:ORGS), Vista Gold Corp. (NYSE:VGZ), InflaRx N.V. (NASDAQ:IFRX), and Sierra Oncology, Inc. (NASDAQ:SRRA). This group of stocks’ market values are similar to PRGX’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $39 million in PRGX’s case. Sierra Oncology, Inc. (NASDAQ:SRRA) is the most popular stock in this table. On the other hand Orgenesis Inc. (NASDAQ:ORGS) is the least popular one with only 2 bullish hedge fund positions. PRGX Global Inc (NASDAQ:PRGX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRGX is 63.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on PRGX as the stock returned 41% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.