Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Humana Inc (NYSE:HUM).
Is Humana Inc (NYSE:HUM) the right investment to pursue these days? Money managers are becoming less confident. The number of long hedge fund bets dropped by 4 recently. Our calculations also showed that hum isn't among the 30 most popular stocks among hedge funds. HUM was in 42 hedge funds' portfolios at the end of March. There were 46 hedge funds in our database with HUM positions at the end of the previous quarter.
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.
We're going to go over the latest hedge fund action regarding Humana Inc (NYSE:HUM).
How are hedge funds trading Humana Inc (NYSE:HUM)?
At the end of the first quarter, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 42 hedge funds with a bullish position in HUM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Humana Inc (NYSE:HUM), which was worth $827.5 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $611 million worth of shares. Moreover, Glenview Capital, Two Sigma Advisors, and Maverick Capital were also bullish on Humana Inc (NYSE:HUM), allocating a large percentage of their portfolios to this stock.
Since Humana Inc (NYSE:HUM) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds who were dropping their entire stakes heading into Q3. Interestingly, Brian Ashford-Russell and Tim Woolley's Polar Capital dumped the largest position of the "upper crust" of funds tracked by Insider Monkey, worth about $52 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also dropped its stock, about $17.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Humana Inc (NYSE:HUM) but similarly valued. We will take a look at Carnival plc (NYSE:CUK), BB&T Corporation (NYSE:BBT), Roper Technologies, Inc. (NYSE:ROP), and Valero Energy Corporation (NYSE:VLO). This group of stocks' market valuations match HUM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUK,8,70177,0 BBT,30,222399,-1 ROP,22,709614,-7 VLO,40,1375723,8 Average,25,594478,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $594 million. That figure was $3053 million in HUM's case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand Carnival plc (NYSE:CUK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HUM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HUM were disappointed as the stock returned -6.8% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.