"The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery," This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds are crazy about.
UnitedHealth Group Inc. (NYSE:UNH) investors should pay attention to a decrease in hedge fund interest recently. UNH was in 72 hedge funds' portfolios at the end of March. There were 82 hedge funds in our database with UNH positions at the end of the previous quarter. Nevertheless, our calculations also showed that UNH ranked 27th among the 30 most popular stocks among hedge funds at the end of March.
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 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.
Let's view the recent hedge fund action regarding UnitedHealth Group Inc. (NYSE:UNH).
How are hedge funds trading UnitedHealth Group Inc. (NYSE:UNH)?
Heading into the second quarter of 2019, a total of 72 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. On the other hand, there were a total of 67 hedge funds with a bullish position in UNH a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eagle Capital Management, managed by Boykin Curry, holds the largest position in UnitedHealth Group Inc. (NYSE:UNH). Eagle Capital Management has a $1.0948 billion position in the stock, comprising 4.1% of its 13F portfolio. Coming in second is Andreas Halvorsen of Viking Global, with a $925 million position; the fund has 5.3% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Stephen Mandel's Lone Pine Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Cliff Asness's AQR Capital Management.
Seeing as UnitedHealth Group Inc. (NYSE:UNH) has witnessed falling interest from hedge fund managers, it's safe to say that there exists a select few fund managers that slashed their positions entirely last quarter. Intriguingly, Doug Silverman and Alexander Klabin's Senator Investment Group cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling about $186.8 million in stock, and Brian Ashford-Russell and Tim Woolley's Polar Capital was right behind this move, as the fund dumped about $122.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 10 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as UnitedHealth Group Inc. (NYSE:UNH) but similarly valued. We will take a look at Pfizer Inc. (NYSE:PFE), Chevron Corporation (NYSE:CVX), AT&T Inc. (NYSE:T), and Novartis AG (NYSE:NVS). All of these stocks' market caps are closest to UNH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PFE,53,5290465,-6 CVX,53,2167224,5 T,41,1083936,-15 NVS,33,1984333,-1 Average,45,2631490,-4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 45 hedge funds with bullish positions and the average amount invested in these stocks was $2631 million. That figure was $6224 million in UNH's case. Pfizer Inc. (NYSE:PFE) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks UnitedHealth Group Inc. (NYSE:UNH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately UNH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UNH were disappointed as the stock returned -1.5% during the same period and slightly 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 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.