Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is DaVita Inc (NYSE:DVA) a superb investment right now? Hedge funds are in a pessimistic mood. The number of long hedge fund bets went down by 2 recently. 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 below for Q2 rankings). DVA was in 34 hedge funds' portfolios at the end of September. There were 36 hedge funds in our database with DVA holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most market participants, hedge funds are perceived as underperforming, old investment vehicles of the past. While there are over 8000 funds trading at present, Our experts hone in on the elite of this club, about 750 funds. These money managers command most of the smart money's total asset base, and by keeping track of their finest investments, Insider Monkey has uncovered several investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy outperformed 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_747408" align="aligncenter" width="1613"] Paul Reeder of PAR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the latest hedge fund action regarding DaVita Inc (NYSE:DVA).
Hedge fund activity in DaVita Inc (NYSE:DVA)
At Q3's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in DVA a year ago. So, let's review 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, Warren Buffett's Berkshire Hathaway has the biggest position in DaVita Inc (NYSE:DVA), worth close to $2.2009 billion, accounting for 1% of its total 13F portfolio. On Berkshire Hathaway's heels is PAR Capital Management, managed by Paul Reeder, which holds a $237.4 million position; 4.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions encompass Larry Robbins's Glenview Capital, Jeffrey Gates's Gates Capital Management and Stephen DuBois's Camber Capital Management. 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 portfolio. SkyTop Capital Management is also relatively very bullish on the stock, dishing out 5.15 percent of its 13F equity portfolio to DVA.
Seeing as DaVita Inc (NYSE:DVA) has faced a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few fund managers that decided to sell off their entire stakes heading into Q4. It's worth mentioning that Andreas Halvorsen's Viking Global cut the largest position of the 750 funds watched by Insider Monkey, worth an estimated $163.6 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $23.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as DaVita Inc (NYSE:DVA) but similarly valued. 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 caps are closest to DVA's market cap.
[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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DVA as the stock returned 25.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.