Hedge Funds’ #22 Stock Pick Debunked Naysayers

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Is UnitedHealth Group Inc. (NYSE:UNH) the right investment to pursue these days? Prominent investors are taking a bullish view. The number of long hedge fund bets improved by 3 recently. Our calculations also showed that UNH raked 22nd among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). UNH was in 91 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 88 hedge funds in our database with UNH positions at the end of the previous quarter.

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

Andrew Raab FPR Partners Andy Raab

Andrew Raab of FPR Partners

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the latest hedge fund action encompassing UnitedHealth Group Inc. (NYSE:UNH).

How are hedge funds trading UnitedHealth Group Inc. (NYSE:UNH)?

Heading into the first quarter of 2020, a total of 91 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UNH over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in UnitedHealth Group Inc. (NYSE:UNH) was held by Lone Pine Capital, which reported holding $1247.4 million worth of stock at the end of September. It was followed by Eagle Capital Management with a $1059.7 million position. Other investors bullish on the company included Egerton Capital Limited, GQG Partners, and Orbis Investment Management. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to UnitedHealth Group Inc. (NYSE:UNH), around 19.18% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, dishing out 9.27 percent of its 13F equity portfolio to UNH.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Egerton Capital Limited, managed by John Armitage, established the largest position in UnitedHealth Group Inc. (NYSE:UNH). Egerton Capital Limited had $825.1 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also initiated a $281.6 million position during the quarter. The other funds with new positions in the stock are Aaron Cowen’s Suvretta Capital Management, Bob Peck and Andy Raab’s FPR Partners, and Doug Silverman and Alexander Klabin’s Senator Investment Group.

Let’s now take a look at hedge fund activity in other stocks similar to UnitedHealth Group Inc. (NYSE:UNH). We will take a look at The Walt Disney Company (NYSE:DIS), Intel Corporation (NASDAQ:INTC), Verizon Communications Inc. (NYSE:VZ), and The Home Depot, Inc. (NYSE:HD). All of these stocks’ market caps match UNH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DIS 118 4968497 3
INTC 58 6147008 -6
VZ 65 1885232 1
HD 91 4996321 21
Average 83 4499265 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 83 hedge funds with bullish positions and the average amount invested in these stocks was $4499 million. That figure was $7896 million in UNH’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Intel Corporation (NASDAQ:INTC) is the least popular one with only 58 bullish hedge fund positions. UnitedHealth Group Inc. (NYSE:UNH) is not the most popular stock in this group but hedge fund interest is still above average. 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 lost 1.0% in 2020 through April 20th but still beat the market by 11 percentage points. Hedge funds were also right about betting on UNH, though not to the same extent, as the stock returned -3.6% during the first four months of 2020 (through April 20th) and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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