Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. 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 DaVita Inc (NYSE:DVA).
Is DaVita Inc (NYSE:DVA) an attractive investment now? The smart money is selling. The number of bullish hedge fund bets decreased by 2 in recent months. Our calculations also showed that DVA 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). DVA was in 34 hedge funds' portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with DVA positions at the end of the previous quarter.
To most market participants, hedge funds are perceived as slow, outdated financial tools of the past. While there are over 8000 funds trading today, We look at the elite of this club, around 750 funds. These money managers oversee the lion's share of the hedge fund industry's total asset base, and by keeping an eye on their best equity investments, Insider Monkey has spotted various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_315178" align="alignnone" width="600"] Warren Buffett of Berkshire Hathaway[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. With all of this in mind let's review the new hedge fund action regarding DaVita Inc (NYSE:DVA).
What have hedge funds been doing with DaVita Inc (NYSE:DVA)?
At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DVA over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Berkshire Hathaway was the largest shareholder of DaVita Inc (NYSE:DVA), with a stake worth $2200.9 million reported as of the end of September. Trailing Berkshire Hathaway was PAR Capital Management, which amassed a stake valued at $237.4 million. Glenview Capital, Gates Capital Management, and Camber Capital Management 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 Gates Capital Management allocated the biggest weight to DaVita Inc (NYSE:DVA), around 7.11% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, setting aside 5.15 percent of its 13F equity portfolio to DVA.
Seeing as DaVita Inc (NYSE:DVA) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there were a few money managers that slashed their full holdings last quarter. It's worth mentioning that Andreas Halvorsen's Viking Global sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $163.6 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $23.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's go over hedge fund activity in other stocks similar to DaVita Inc (NYSE:DVA). We will take a look at Vail Resorts, Inc. (NYSE:MTN), Black Knight, Inc. (NYSE:BKI), Omega Healthcare Investors Inc (NYSE:OHI), and CPFL Energia S.A. (NYSE:CPL). This group of stocks' market values are similar to DVA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTN,35,478623,2 BKI,42,883381,-3 OHI,18,176390,1 CPL,3,17897,-1 Average,24.5,389073,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $389 million. That figure was $3080 million in DVA's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand CPFL Energia S.A. (NYSE:CPL) is the least popular one with only 3 bullish hedge fund positions. DaVita Inc (NYSE:DVA) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on DVA as the stock returned 44.2% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. 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.