Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Universal Health Services, Inc. (NYSE:UHS)? The smart money sentiment can provide an answer to this question.
Is Universal Health Services, Inc. (NYSE:UHS) a good investment today? The best stock pickers are in a bearish mood. The number of bullish hedge fund bets went down by 5 lately. Our calculations also showed that UHS isn't among the 30 most popular stocks among hedge funds. UHS was in 24 hedge funds' portfolios at the end of the second quarter of 2019. There were 29 hedge funds in our database with UHS positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, 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 check out the new hedge fund action surrounding Universal Health Services, Inc. (NYSE:UHS).
What have hedge funds been doing with Universal Health Services, Inc. (NYSE:UHS)?
Heading into the third quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in UHS 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.
Among these funds, Glenview Capital held the most valuable stake in Universal Health Services, Inc. (NYSE:UHS), which was worth $233 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $139.5 million worth of shares. Moreover, Camber Capital Management, Arrowstreet Capital, and Winton Capital Management were also bullish on Universal Health Services, Inc. (NYSE:UHS), allocating a large percentage of their portfolios to this stock.
Seeing as Universal Health Services, Inc. (NYSE:UHS) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedge funds that decided to sell off their entire stakes heading into Q3. Intriguingly, Brian Ashford-Russell and Tim Woolley's Polar Capital cut the biggest position of all the hedgies watched by Insider Monkey, totaling close to $44.1 million in stock. Amy Mulderry's fund, Tavio Capital, also dropped its stock, about $19.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Universal Health Services, Inc. (NYSE:UHS). These stocks are Masco Corporation (NYSE:MAS), Duke Realty Corporation (NYSE:DRE), Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), and Leidos Holdings Inc (NYSE:LDOS). This group of stocks' market caps are similar to UHS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAS,45,1083854,5 DRE,23,412696,7 NCLH,35,965515,0 LDOS,23,415779,2 Average,31.5,719461,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $714 million in UHS's case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 23 bullish hedge fund positions. Universal Health Services, Inc. (NYSE:UHS) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on UHS as the stock returned 14.2% during the same time frame and outperformed the market by an even larger margin. 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.