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Did Hedge Funds Drop The Ball On Tenet Healthcare Corp (THC) ?

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Tenet Healthcare Corp (NYSE:THC).

Tenet Healthcare Corp (NYSE:THC) has experienced a decrease in support from the world's most elite money managers in recent months. Our calculations also showed that THC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

[caption id="attachment_26869" align="aligncenter" width="508"] Larry Robbins of Glenview Capital[/caption]

GLENVIEW 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. Let's check out the latest hedge fund action regarding Tenet Healthcare Corp (NYSE:THC).

How have hedgies been trading Tenet Healthcare Corp (NYSE:THC)?

At Q3's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards THC over the last 17 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

THC_dec2019

The largest stake in Tenet Healthcare Corp (NYSE:THC) was held by Glenview Capital, which reported holding $430.8 million worth of stock at the end of September. It was followed by Cyrus Capital Partners with a $69.7 million position. Other investors bullish on the company included Camber Capital Management, Nantahala Capital Management, and Redwood Capital Management. In terms of the portfolio weights assigned to each position Cyrus Capital Partners allocated the biggest weight to Tenet Healthcare Corp (NYSE:THC), around 9.95% of its portfolio. Nut Tree Capital is also relatively very bullish on the stock, earmarking 7.46 percent of its 13F equity portfolio to THC.

Due to the fact that Tenet Healthcare Corp (NYSE:THC) has witnessed falling interest from hedge fund managers, it's safe to say that there is a sect of money managers that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Christopher James's Partner Fund Management sold off the largest position of all the hedgies watched by Insider Monkey, worth about $30.7 million in stock. Arthur B Cohen and Joseph Healey's fund, Healthcor Management, also said goodbye to its stock, about $8.8 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to Tenet Healthcare Corp (NYSE:THC). These stocks are Kinsale Capital Group, Inc. (NASDAQ:KNSL), Verra Mobility Corporation (NASDAQ:VRRM), Commscope Holding Company Inc (NASDAQ:COMM), and Sprouts Farmers Market Inc (NASDAQ:SFM). All of these stocks' market caps are similar to THC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KNSL,11,50852,2 VRRM,15,146636,-6 COMM,23,791413,3 SFM,23,325458,1 Average,18,328590,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $743 million in THC's case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Kinsale Capital Group, Inc. (NASDAQ:KNSL) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Tenet Healthcare Corp (NYSE:THC) is more popular among hedge funds. 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 THC as the stock returned 45.6% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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