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Were Hedge Funds Right About Buying PRA Health Sciences Inc (PRAH)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like PRA Health Sciences Inc (NASDAQ:PRAH).

PRA Health Sciences Inc (NASDAQ:PRAH) has seen an increase in hedge fund interest recently. Our calculations also showed that PRAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are viewed as slow, outdated investment tools of years past. While there are more than 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this club, around 750 funds. These money managers administer the majority of the smart money’s total capital, and by watching their top investments, Insider Monkey has discovered a few investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Jeffrey Talpins of Element Capital

Jeffrey Talpins of Element Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the key hedge fund action encompassing PRA Health Sciences Inc (NASDAQ:PRAH).

How have hedgies been trading PRA Health Sciences Inc (NASDAQ:PRAH)?

At Q3’s end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in PRAH a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

PRAH_dec2019

Among these funds, Citadel Investment Group held the most valuable stake in PRA Health Sciences Inc (NASDAQ:PRAH), which was worth $118.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $110.4 million worth of shares. Point72 Asset Management, Millennium Management, and Redmile Group 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 Endurant Capital Management allocated the biggest weight to PRA Health Sciences Inc (NASDAQ:PRAH), around 3.74% of its portfolio. Element Capital Management is also relatively very bullish on the stock, setting aside 3.1 percent of its 13F equity portfolio to PRAH.

As industrywide interest jumped, some big names have jumped into PRA Health Sciences Inc (NASDAQ:PRAH) headfirst. Redmile Group, managed by Jeremy Green, created the most valuable position in PRA Health Sciences Inc (NASDAQ:PRAH). Redmile Group had $39.2 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $35.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian Ashford-Russell and Tim Woolley’s Polar Capital, Anand Parekh’s Alyeska Investment Group, and Brandon Haley’s Holocene Advisors.

Let’s also examine hedge fund activity in other stocks similar to PRA Health Sciences Inc (NASDAQ:PRAH). These stocks are Arrow Electronics, Inc. (NYSE:ARW), Unum Group (NYSE:UNM), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), and Zillow Group Inc (NASDAQ:Z). All of these stocks’ market caps are similar to PRAH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ARW 22 536478 5
UNM 23 474210 -2
KNX 22 303434 -1
Z 38 879845 -13
Average 26.25 548492 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $589 million in PRAH’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Arrow Electronics, Inc. (NYSE:ARW) is the least popular one with only 22 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PRAH, though not to the same extent, as the stock returned 9.7% during the first two months of the fourth quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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