We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards DaVita Inc (NYSE:DVA).
Hedge fund interest in DaVita Inc (NYSE:DVA) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as NRG Energy Inc (NYSE:NRG), RingCentral Inc (NYSE:RNG), and UGI Corp (NYSE:UGI) to gather more data points. Our calculations also showed that DVA isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the recent hedge fund action encompassing DaVita Inc (NYSE:DVA).
How have hedgies been trading DaVita Inc (NYSE:DVA)?
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in DVA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
[caption id="attachment_747408" align="aligncenter" width="473"] Paul Reeder of PAR Capital[/caption]
More specifically, Berkshire Hathaway was the largest shareholder of DaVita Inc (NYSE:DVA), with a stake worth $2169.7 million reported as of the end of March. Trailing Berkshire Hathaway was PAR Capital Management, which amassed a stake valued at $234 million. Gates Capital Management, Glenview Capital, and Viking Global were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that DaVita Inc (NYSE:DVA) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds that elected to cut their positions entirely last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital sold off the largest position of the 750 funds tracked by Insider Monkey, comprising about $13.2 million in call options, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund cut about $5.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to DaVita Inc (NYSE:DVA). These stocks are NRG Energy Inc (NYSE:NRG), RingCentral Inc (NYSE:RNG), UGI Corp (NYSE:UGI), and Vedanta Ltd (NYSE:VEDL). This group of stocks' market valuations are similar to DVA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NRG,42,1548220,2 RNG,45,1321409,2 UGI,20,457311,0 VEDL,8,53339,2 Average,28.75,845070,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $845 million. That figure was $3435 million in DVA's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 8 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately DVA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DVA were disappointed as the stock returned 1.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.