It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Humana Inc (NYSE:HUM) and compare its performance against hedge funds' favorite stocks.
Is Humana Inc (NYSE:HUM) a sound investment now? The best stock pickers are in a bearish mood. The number of long hedge fund bets retreated by 1 lately. Our calculations also showed that HUM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30570" align="aligncenter" width="478"] James Dinan of York Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let's take a glance at the fresh hedge fund action surrounding Humana Inc (NYSE:HUM).
Hedge fund activity in Humana Inc (NYSE:HUM)
At Q3's end, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HUM over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Humana Inc (NYSE:HUM), which was worth $755.8 million at the end of the third quarter. On the second spot was Glenview Capital which amassed $408.9 million worth of shares. Lone Pine Capital, Two Sigma Advisors, and Maverick 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 TPG-AXON Management LP allocated the biggest weight to Humana Inc (NYSE:HUM), around 15.22% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, earmarking 8.36 percent of its 13F equity portfolio to HUM.
Due to the fact that Humana Inc (NYSE:HUM) has witnessed declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of hedgies that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Christopher James's Partner Fund Management cut the largest position of all the hedgies followed by Insider Monkey, worth close to $149.1 million in stock. Jeffrey Altman's fund, Owl Creek Asset Management, also dropped its stock, about $74.6 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). We will take a look at Yum! Brands, Inc. (NYSE:YUM), Energy Transfer L.P. (NYSE:ET), The Kraft Heinz Company (NASDAQ:KHC), and NetEase, Inc (NASDAQ:NTES). All of these stocks' market caps resemble HUM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position YUM,35,842106,5 ET,30,623109,1 KHC,36,9572927,2 NTES,30,3513002,-4 Average,32.75,3637786,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $3638 million. That figure was $3527 million in HUM's case. The Kraft Heinz Company (NASDAQ:KHC) is the most popular stock in this table. On the other hand Energy Transfer L.P. (NYSE:ET) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately HUM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HUM were disappointed as the stock returned 29.2% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.