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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded PRA Health Sciences Inc (NASDAQ:PRAH) and determine whether the smart money was really smart about this stock.

PRA Health Sciences Inc (NASDAQ:PRAH) investors should pay attention to a decrease in hedge fund interest of late. PRAH was in 29 hedge funds’ portfolios at the end of March. There were 38 hedge funds in our database with PRAH holdings at the end of the previous quarter. Our calculations also showed that PRAH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to check out the recent hedge fund action surrounding PRA Health Sciences Inc (NASDAQ:PRAH).

How are hedge funds trading PRA Health Sciences Inc (NASDAQ:PRAH)?

Heading into the second quarter of 2020, a total of 29 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 the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (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 $48.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $38.6 million worth of shares. Redmile Group, Fisher Asset Management, and Polar Capital 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 1.46% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, dishing out 1.11 percent of its 13F equity portfolio to PRAH.

Seeing as PRA Health Sciences Inc (NASDAQ:PRAH) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedgies that elected to cut their full holdings heading into Q4. At the top of the heap, Larry Robbins’s Glenview Capital said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, totaling close to $28.1 million in stock, and Amy Mulderry’s Tavio Capital was right behind this move, as the fund cut about $8.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 9 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to PRA Health Sciences Inc (NASDAQ:PRAH). These stocks are Reinsurance Group of America Inc (NYSE:RGA), Vereit Inc (NYSE:VER), Healthcare Trust Of America Inc (NYSE:HTA), and Exelixis, Inc. (NASDAQ:EXEL). This group of stocks’ market values match PRAH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RGA 30 275843 3
VER 18 314967 -10
HTA 16 106529 5
EXEL 30 935037 7
Average 23.5 408094 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $408 million. That figure was $190 million in PRAH’s case. Reinsurance Group of America Inc (NYSE:RGA) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 16 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately PRAH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PRAH were disappointed as the stock returned 17.2% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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