Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
One stock that has experienced an increase in enthusiasm from smart money of late is ProAssurance Corporation (NYSE:PRA). At the end of September 13 funds from our database held shares of the company, compared to 11 funds a quarter earlier. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NorthWestern Corp (NYSE:NWE), MFA Financial, Inc. (NYSE:MFA), and Brinker International, Inc. (NYSE:EAT) to gather more data points.
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
Keeping this in mind, we’re going to go over the recent action surrounding ProAssurance Corporation (NYSE:PRA).
Hedge fund activity in ProAssurance Corporation (NYSE:PRA)
At the end of September, 13 funds tracked by Insider Monkey held long positions in ProAssurance Corporation, up by 18% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in PRA at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diamond Hill Capital, led by Ric Dillon, holds the largest position in ProAssurance Corporation (NYSE:PRA). Diamond Hill Capital has a $25.1 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, one of the largest hedge funds in the world, with a $17.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, Chuck Royce’s Royce & Associates and Cliff Asness’s AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Consequently, some big names have jumped into ProAssurance Corporation (NYSE:PRA) headfirst. Stevens Capital Management, led by Matthew Tewksbury, initiated the biggest position in ProAssurance Corporation (NYSE:PRA). Stevens Capital Management had $0.3 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Glenn Russell Dubin’s Highbridge Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ProAssurance Corporation (NYSE:PRA) but similarly valued. These stocks are NorthWestern Corp (NYSE:NWE), MFA Financial, Inc. (NYSE:MFA), Brinker International, Inc. (NYSE:EAT), and Sunstone Hotel Investors Inc (NYSE:SHO). All of these stocks’ market caps are similar to PRA’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 20 funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $90 million in PRA’s case. Brinker International, Inc. (NYSE:EAT) is the most popular stock in this table. On the other hand NorthWestern Corp (NYSE:NWE) is the least popular one with only six bullish hedge fund positions. ProAssurance Corporation (NYSE:PRA) 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. In this regard Brinker International, Inc. (NYSE:EAT) might be a better candidate to consider taking a long position in.