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Were Hedge Funds Right About Dumping ProAssurance Corporation (PRA)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of ProAssurance Corporation (NYSE:PRA) based on that data and determine whether they were really smart about the stock.

ProAssurance Corporation (NYSE:PRA) investors should pay attention to a decrease in hedge fund sentiment lately. PRA was in 10 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with PRA positions at the end of the previous quarter. Our calculations also showed that PRA 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill 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. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the new hedge fund action encompassing ProAssurance Corporation (NYSE:PRA).

How have hedgies been trading ProAssurance Corporation (NYSE:PRA)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in PRA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the most valuable position in ProAssurance Corporation (NYSE:PRA). Diamond Hill Capital has a $38.1 million position in the stock, comprising 0.3% of its 13F portfolio. The second most bullish fund manager is Chuck Royce of Royce & Associates, with a $34.5 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Renaissance Technologies, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to ProAssurance Corporation (NYSE:PRA), around 0.48% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.47 percent of its 13F equity portfolio to PRA.

Since ProAssurance Corporation (NYSE:PRA) has faced bearish sentiment from the smart money, it’s easy to see that there were a few hedge funds that decided to sell off their positions entirely heading into Q4. Interestingly, Noam Gottesman’s GLG Partners dropped the biggest position of the 750 funds followed by Insider Monkey, valued at about $10.4 million in stock. John D. Gillespie’s fund, Prospector Partners, also cut its stock, about $5.7 million worth. These transactions are important to note, as total hedge fund interest dropped by 8 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to ProAssurance Corporation (NYSE:PRA). We will take a look at Silicon Motion Technology Corp. (NASDAQ:SIMO), Comfort Systems USA, Inc. (NYSE:FIX), PagerDuty, Inc. (NYSE:PD), and Kulicke and Soffa Industries Inc. (NASDAQ:KLIC). This group of stocks’ market valuations match PRA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIMO 18 214067 1
FIX 20 71526 -4
PD 25 54152 10
KLIC 19 231499 -3
Average 20.5 142811 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $124 million in PRA’s case. PagerDuty, Inc. (NYSE:PD) is the most popular stock in this table. On the other hand Silicon Motion Technology Corp. (NASDAQ:SIMO) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks ProAssurance Corporation (NYSE:PRA) is even less popular than SIMO. Hedge funds dodged a bullet by taking a bearish stance towards PRA. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 15.5 percentage points. Unfortunately PRA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PRA investors were disappointed as the stock returned -41.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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