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Hedge Funds Are Dumping Encompass Health Corporation (EHC)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Encompass Health Corporation (NYSE:EHC).

Encompass Health Corporation (NYSE:EHC) was in 22 hedge funds’ portfolios at the end of September. EHC has experienced a decrease in enthusiasm from smart money of late. There were 23 hedge funds in our database with EHC holdings at the end of the previous quarter. Our calculations also showed that EHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most shareholders, hedge funds are viewed as underperforming, outdated financial tools of the past. While there are more than 8000 funds with their doors open at present, Our researchers hone in on the moguls of this group, approximately 750 funds. These hedge fund managers shepherd bulk of the hedge fund industry’s total asset base, and by following their top stock picks, Insider Monkey has uncovered a number of investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action regarding Encompass Health Corporation (NYSE:EHC).

What does smart money think about Encompass Health Corporation (NYSE:EHC)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EHC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Point72 Asset Management held the most valuable stake in Encompass Health Corporation (NYSE:EHC), which was worth $108.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $55.3 million worth of shares. Rock Springs Capital Management, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rock Springs Capital Management allocated the biggest weight to Encompass Health Corporation (NYSE:EHC), around 2.05% of its 13F portfolio. Point72 Asset Management is also relatively very bullish on the stock, dishing out 0.66 percent of its 13F equity portfolio to EHC.

Due to the fact that Encompass Health Corporation (NYSE:EHC) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds that elected to cut their positions entirely heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth close to $11.3 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also said goodbye to its stock, about $2.9 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Encompass Health Corporation (NYSE:EHC) but similarly valued. We will take a look at People’s United Financial, Inc. (NASDAQ:PBCT), InterXion Holding NV (NYSE:INXN), PRA Health Sciences Inc (NASDAQ:PRAH), and Arrow Electronics, Inc. (NYSE:ARW). This group of stocks’ market valuations resemble EHC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBCT 21 140867 3
INXN 29 655643 -5
PRAH 31 588717 6
ARW 22 536478 5
Average 25.75 480426 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $480 million. That figure was $423 million in EHC’s case. PRA Health Sciences Inc (NASDAQ:PRAH) is the most popular stock in this table. On the other hand People’s United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 21 bullish hedge fund positions. Encompass Health Corporation (NYSE:EHC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on EHC as the stock returned 11.7% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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