Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Centene Corp (NYSE:CNC).
Centene Corp (NYSE:CNC) was in 65 hedge funds' portfolios at the end of the second quarter of 2019. CNC has experienced an increase in hedge fund sentiment lately. There were 58 hedge funds in our database with CNC holdings at the end of the previous quarter. Our calculations also showed that CNC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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.
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. Let's review the fresh hedge fund action encompassing Centene Corp (NYSE:CNC).
What have hedge funds been doing with Centene Corp (NYSE:CNC)?
Heading into the third quarter of 2019, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 42 hedge funds with a bullish position in CNC 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andreas Halvorsen's Viking Global has the biggest position in Centene Corp (NYSE:CNC), worth close to $733.9 million, corresponding to 3.3% of its total 13F portfolio. On Viking Global's heels is Maverick Capital, managed by Lee Ainslie, which holds a $321.1 million position; the fund has 4.7% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass John Smith Clark's Southpoint Capital Advisors, Ricky Sandler's Eminence Capital and Dan Loeb's Third Point.
As aggregate interest increased, key money managers have jumped into Centene Corp (NYSE:CNC) headfirst. Third Point, managed by Dan Loeb, established the biggest position in Centene Corp (NYSE:CNC). Third Point had $131.1 million invested in the company at the end of the quarter. Keith Meister's Corvex Capital also made a $73.1 million investment in the stock during the quarter. The other funds with brand new CNC positions are Aaron Cowen's Suvretta Capital Management, Jeffrey Altman's Owl Creek Asset Management, and Jeffrey Tannenbaum's Fir Tree.
Let's go over hedge fund activity in other stocks similar to Centene Corp (NYSE:CNC). We will take a look at Mettler-Toledo International Inc. (NYSE:MTD), Imperial Oil Limited (NYSE:IMO), McCormick & Company, Incorporated (NYSE:MKC), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks' market valuations resemble CNC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTD,20,318889,2 IMO,12,48343,-5 MKC,30,214802,6 AWK,23,493606,-5 Average,21.25,268910,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $2992 million in CNC's case. McCormick & Company, Incorporated (NYSE:MKC) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Centene Corp (NYSE:CNC) is more popular among hedge funds. 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 CNC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNC were disappointed as the stock returned -17.5% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.