Hedge Funds Were Buying DaVita Inc (DVA) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of DaVita Inc (NYSE:DVA) based on that data.

DaVita Inc (NYSE:DVA) investors should be aware of an increase in support from the world’s most elite money managers in recent months. DVA was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 37 hedge funds in our database with DVA positions at the end of the previous quarter. Our calculations also showed that DVA isn’t 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).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Gates of Gates Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let’s view the recent hedge fund action regarding DaVita Inc (NYSE:DVA).

What does smart money think about DaVita Inc (NYSE:DVA)?

At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DVA 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.

More specifically, Berkshire Hathaway was the largest shareholder of DaVita Inc (NYSE:DVA), with a stake worth $2893.6 million reported as of the end of September. Trailing Berkshire Hathaway was PAR Capital Management, which amassed a stake valued at $312.1 million. Gates Capital Management, Glenview Capital, and DPM Capital 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 DPM Capital allocated the biggest weight to DaVita Inc (NYSE:DVA), around 81.56% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, earmarking 7.33 percent of its 13F equity portfolio to DVA.

As industrywide interest jumped, key money managers have jumped into DaVita Inc (NYSE:DVA) headfirst. AQR Capital Management, managed by Cliff Asness, initiated the biggest position in DaVita Inc (NYSE:DVA). AQR Capital Management had $31.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $20.3 million position during the quarter. The following funds were also among the new DVA investors: Bruce Kovner’s Caxton Associates LP, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Vishal Saluja and Pham Quang’s Endurant Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as DaVita Inc (NYSE:DVA) but similarly valued. These stocks are TechnipFMC plc (NYSE:FTI), Cognex Corporation (NASDAQ:CGNX), AGNC Investment Corp. (NASDAQ:AGNC), and Zillow Group Inc (NASDAQ:Z). This group of stocks’ market caps resemble DVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTI 34 862501 -2
CGNX 24 211987 4
AGNC 21 147216 3
Z 37 1682527 -5
Average 29 726058 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $726 million. That figure was $3962 million in DVA’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks DaVita Inc (NYSE:DVA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still managed to beat the market by 3.2 percentage points. Hedge funds were also right about betting on DVA as the stock returned -4.4% so far in Q1 (through March 16th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.