Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Protective Insurance Corporation (NASDAQ:PTVCB) investors should pay attention to a decrease in hedge fund interest lately. Our calculations also showed that PTVCB isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Dmitry Balyasny of Balyasny Asset Managemnet
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to review the recent hedge fund action surrounding Protective Insurance Corporation (NASDAQ:PTVCB).
What have hedge funds been doing with Protective Insurance Corporation (NASDAQ:PTVCB)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in PTVCB a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Protective Insurance Corporation (NASDAQ:PTVCB), with a stake worth $10.5 million reported as of the end of March. Trailing Renaissance Technologies was Intrepid Capital Management, which amassed a stake valued at $9.4 million. Balyasny Asset Management, Two Sigma Advisors, and Springbok Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Protective Insurance Corporation (NASDAQ:PTVCB) has faced falling interest from hedge fund managers, we can see that there exists a select few hedgies that slashed their entire stakes heading into Q3. Interestingly, Joe DiMenna’s ZWEIG DIMENNA PARTNERS said goodbye to the biggest position of the 750 funds watched by Insider Monkey, totaling an estimated $1.1 million in stock. Chuck Royce’s fund, Royce & Associates, also dumped its stock, about $0.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Protective Insurance Corporation (NASDAQ:PTVCB). These stocks are Intelligent Systems Corporation (NYSE:INS), Aerohive Networks Inc (NYSE:HIVE), Pure Cycle Corporation (NASDAQ:PCYO), and GWG Holdings, Inc (NASDAQ:GWGH). This group of stocks’ market values match PTVCB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INS | 7 | 70269 | 2 |
| HIVE | 16 | 75066 | 2 |
| PCYO | 7 | 88398 | 1 |
| GWGH | 1 | 74 | 1 |
| Average | 7.75 | 58452 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $21 million in PTVCB’s case. Aerohive Networks Inc (NYSE:HIVE) is the most popular stock in this table. On the other hand GWG Holdings, Inc (NASDAQ:GWGH) is the least popular one with only 1 bullish hedge fund positions. Protective Insurance Corporation (NASDAQ:PTVCB) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PTVCB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PTVCB investors were disappointed as the stock returned 1.1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.