Is Aetna Inc. (NYSE:AET) the right pick for your portfolio? The smart money is getting less bullish. The number of long hedge fund positions were cut by 8 in recent months. UBS initiated a “Buy” on Aetna earlier this morning, so we should watch what hedgies and insiders are doing as well.
In the eyes of most market participants, hedge funds are viewed as slow, old investment tools of yesteryear. While there are over 8000 funds trading today, we hone in on the masters of this club, around 450 funds. It is estimated that this group controls the majority of the hedge fund industry’s total capital, and by tracking their best stock picks, we have spotted a few investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (see the details here).
Just as integral, bullish insider trading activity is a second way to parse down the marketplace. There are a number of stimuli for an executive to drop shares of his or her company, but only one, very clear reason why they would initiate a purchase. Plenty of academic studies have demonstrated the useful potential of this tactic if piggybackers understand where to look (learn more here).
Keeping this in mind, we’re going to take a gander at the key action regarding Aetna Inc. (NYSE:AET).
What does the smart money think about Aetna Inc. (NYSE:AET)?
At year’s end, a total of 45 of the hedge funds we track were bullish in this stock, a change of -15% from the third quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly.
When looking at the hedgies we track, David Einhorn’s Greenlight Capital had the biggest position in Aetna Inc. (NYSE:AET), worth close to $301 million, comprising 4.7% of its total 13F portfolio. Coming in second is Orbis Investment Management, managed by William B. Gray, which held a $277 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Daniel S. Och’s OZ Management, John Paulson’s Paulson & Co and Paul Reeder and Edward Shapiro’s PAR Capital Management.
Judging by the fact that Aetna Inc. (NYSE:AET) has witnessed a declination in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who were dropping their positions entirely heading into 2013. Interestingly, Jeffrey Tannenbaum’s Fir Tree dumped the largest position of all the hedgies we monitor, valued at close to $79 million in call options. James Dinan’s fund, York Capital Management, also sold off its stock, about $53 million worth. These transactions are interesting, as total hedge fund interest dropped by 8 funds heading into 2013.
How are insiders trading Aetna Inc. (NYSE:AET)?
Insider buying is most useful when the company we’re looking at has experienced transactions within the past six months. Over the latest 180-day time frame, Aetna Inc. (NYSE:AET) has seen 1 unique insiders buying, and 8 insider sales (see the details of insider trades here).
Let’s also examine hedge fund and insider activity in other stocks similar to Aetna Inc. (NYSE:AET). These stocks are Express Scripts Holding Company (NASDAQ:ESRX), Coventry Health Care, Inc. (NYSE:CVH), Humana Inc (NYSE:HUM), WellPoint, Inc. (NYSE:WLP), and CIGNA Corporation (NYSE:CI). This group of stocks are the members of the health care plans industry and their market caps resemble AET’s market cap.
|Company Name||# of Hedge Funds||# of Insiders Buying||# of Insiders Selling|
|Express Scripts Holding Company (NASDAQ:ESRX)||74||1||2|
|Coventry Health Care, Inc. (NYSE:CVH)||26||0||10|
|Humana Inc (NYSE:HUM)||41||0||4|
|WellPoint, Inc. (NYSE:WLP)||43||0||6|
|CIGNA Corporation (NYSE:CI)||37||1||6|
With the results exhibited by the aforementioned tactics, retail investors should always pay attention to hedge fund and insider trading activity, and Aetna Inc. (NYSE:AET) is no exception.