Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Molina Healthcare, Inc. (NYSE:MOH).
Molina Healthcare, Inc. (NYSE:MOH) investors should be aware of a decrease in enthusiasm from smart money in recent months. MOH was in 27 hedge funds' portfolios at the end of December. There were 30 hedge funds in our database with MOH holdings at the end of the previous quarter. Our calculations also showed that MOH isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the key hedge fund action encompassing Molina Healthcare, Inc. (NYSE:MOH).
How have hedgies been trading Molina Healthcare, Inc. (NYSE:MOH)?
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MOH over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Jim Simons's Renaissance Technologies has the biggest position in Molina Healthcare, Inc. (NYSE:MOH), worth close to $463.7 million, amounting to 0.5% of its total 13F portfolio. On Renaissance Technologies's heels is Iridian Asset Management, led by David Cohen and Harold Levy, holding a $123 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Cliff Asness's AQR Capital Management and Principal Global Investors's Columbus Circle Investors.
Because Molina Healthcare, Inc. (NYSE:MOH) has faced a decline in interest from the smart money, logic holds that there was a specific group of hedgies who were dropping their full holdings by the end of the third quarter. Intriguingly, Lee Ainslie's Maverick Capital dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $10.5 million in call options, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $4.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to Molina Healthcare, Inc. (NYSE:MOH). These stocks are Under Armour Inc (NYSE:UA), Israel Chemicals Ltd. (NYSE:ICL), XPO Logistics Inc (NYSE:XPO), and BorgWarner Inc. (NYSE:BWA). All of these stocks' market caps match MOH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UA,27,607105,-1 ICL,5,53471,-3 XPO,44,2449139,0 BWA,22,579935,0 Average,24.5,922413,-1 [/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 $922 million. That figure was $1113 million in MOH's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Israel Chemicals Ltd. (NYSE:ICL) is the least popular one with only 5 bullish hedge fund positions. Molina Healthcare, Inc. (NYSE:MOH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on Molina Healthcare as the stock returned 26.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.