Hedge Funds Have Never Been This Bullish On UnitedHealth Group (UNH)

In this article we will check out the progression of hedge fund sentiment towards UnitedHealth Group Inc. (NYSE:UNH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

UnitedHealth Group Inc. (NYSE:UNH) investors should pay attention to an increase in enthusiasm from smart money in recent months. UNH was in 104 hedge funds’ portfolios at the end of March. There were 91 hedge funds in our database with UNH positions at the end of the previous quarter. Our calculations also showed that UNH is among the 30 most popular stocks among hedge funds (click for Q1 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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 let’s take a look at the fresh hedge fund action surrounding UnitedHealth Group Inc. (NYSE:UNH).

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

At the end of the first quarter, a total of 104 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in UNH over the last 18 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.

The largest stake in UnitedHealth Group Inc. (NYSE:UNH) was held by Lone Pine Capital, which reported holding $1150.6 million worth of stock at the end of September. It was followed by Eagle Capital Management with a $882.8 million position. Other investors bullish on the company included Orbis Investment Management, Egerton Capital Limited, and GQG Partners. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to UnitedHealth Group Inc. (NYSE:UNH), around 24.39% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, designating 11.02 percent of its 13F equity portfolio to UNH.

As aggregate interest increased, key money managers were breaking ground themselves. Steadfast Capital Management, managed by Robert Pitts, established the largest position in UnitedHealth Group Inc. (NYSE:UNH). Steadfast Capital Management had $171.4 million invested in the company at the end of the quarter. Daniel Sundheim’s D1 Capital Partners also initiated a $79.8 million position during the quarter. The other funds with new positions in the stock are Robert Pohly’s Samlyn Capital, Zach Schreiber’s Point State Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to UnitedHealth Group Inc. (NYSE:UNH). These stocks are Intel Corporation (NASDAQ:INTC), Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and The Home Depot, Inc. (NYSE:HD). This group of stocks’ market values resemble UNH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INTC 73 5958759 15
VZ 68 2673270 3
T 57 1646079 7
HD 87 3585582 -4
Average 71.25 3465923 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 71.25 hedge funds with bullish positions and the average amount invested in these stocks was $3466 million. That figure was $6665 million in UNH’s case. The Home Depot, Inc. (NYSE:HD) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. Compared to these stocks UnitedHealth Group Inc. (NYSE:UNH) is more popular among hedge funds. 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 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on UNH, though not to the same extent, as the stock returned 16.3% in Q2 (through May 22nd) and outperformed the market as well.

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