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Were Hedge Funds Right About Betting On Humana Inc (HUM)?

Abigail Fisher
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Humana Inc (NYSE:HUM).

Humana Inc (NYSE:HUM) investors should be aware of an increase in hedge fund sentiment of late. Humana Inc (NYSE:HUM) was in 73 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 75. Our calculations also showed that HUM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Aaron Cowen Suvretta Capital
Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to view the latest hedge fund action regarding Humana Inc (NYSE:HUM).

Hedge fund activity in Humana Inc (NYSE:HUM)

At second quarter's end, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HUM over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Humana Inc (NYSE:HUM) was held by Lone Pine Capital, which reported holding $939.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $902.4 million position. Other investors bullish on the company included AQR Capital Management, Maverick Capital, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position BloombergSen allocated the biggest weight to Humana Inc (NYSE:HUM), around 8.19% of its 13F portfolio. Maverick Capital is also relatively very bullish on the stock, setting aside 6.33 percent of its 13F equity portfolio to HUM.

As one would reasonably expect, key hedge funds have jumped into Humana Inc (NYSE:HUM) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, initiated the largest position in Humana Inc (NYSE:HUM). Senator Investment Group had $135.7 million invested in the company at the end of the quarter. Aaron Cowen's Suvretta Capital Management also initiated a $61.7 million position during the quarter. The following funds were also among the new HUM investors: Steve Cohen's Point72 Asset Management, Michael Rockefeller and KarláKroeker's Woodline Partners, and Dmitry Balyasny's Balyasny Asset Management.

Let's go over hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). We will take a look at Northrop Grumman Corporation (NYSE:NOC), Global Payments Inc (NYSE:GPN), Sea Limited (NYSE:SE), Truist Financial Corporation (NYSE:TFC), CNOOC Limited (NYSE:CEO), Boston Scientific Corporation (NYSE:BSX), and Intercontinental Exchange Inc (NYSE:ICE). This group of stocks' market caps match HUM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOC,47,990004,2 GPN,66,3311740,-1 SE,82,6358325,6 TFC,33,287639,-1 CEO,13,166646,2 BSX,66,2312667,7 ICE,60,2754652,-1 Average,52.4,2311668,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.4 hedge funds with bullish positions and the average amount invested in these stocks was $2312 million. That figure was $4698 million in HUM's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 13 bullish hedge fund positions. Humana Inc (NYSE:HUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HUM is 80.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately HUM wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HUM were disappointed as the stock returned 13.1% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.

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