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UnitedHealth Group Inc. (UNH): Hedge Funds Are Cashing Out

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards UnitedHealth Group Inc. (NYSE:UNH) and determine whether hedge funds skillfully traded this stock.

UnitedHealth Group Inc. (NYSE:UNH) has experienced a decrease in activity from the world’s largest hedge funds recently. UnitedHealth Group Inc. (NYSE:UNH) was in 96 hedge funds’ portfolios at the end of June. The all time high for this statistics is 104 which was achieved at the end of March. Hedge funds flocked into the stock during Q1 when UNH shares were trading at a deep discount and some of these hedge funds cashed out during the second quarter. Nevertheless, UNH still managed to rank #22 among the 30 most popular stocks among hedge funds (click for Q2 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Boykin Curry EAGLE CAPITAL MANAGEMENT

Boykin Curry of Eagle Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding UnitedHealth Group Inc. (NYSE:UNH).

What have hedge funds been doing with UnitedHealth Group Inc. (NYSE:UNH)?

At the end of June, a total of 96 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the first quarter of 2020. By comparison, 68 hedge funds held shares or bullish call options in UNH a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eagle Capital Management, managed by Boykin Curry, holds the most valuable position in UnitedHealth Group Inc. (NYSE:UNH). Eagle Capital Management has a $1.0754 billion position in the stock, comprising 3.9% of its 13F portfolio. The second largest stake is held by Lone Pine Capital, holding a $891.9 million position; 4.5% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of John Armitage’s Egerton Capital Limited, Ken Fisher’s Fisher Asset Management and William B. Gray’s 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 13.77% of its 13F portfolio. Route One Investment Company is also relatively very bullish on the stock, earmarking 10.88 percent of its 13F equity portfolio to UNH.

Due to the fact that UnitedHealth Group Inc. (NYSE:UNH) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that elected to cut their full holdings in the second quarter. It’s worth mentioning that Daniel Sundheim’s D1 Capital Partners dumped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, worth about $79.8 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund dumped about $61.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 8 funds in the second quarter.

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 Home Depot, Inc. (NYSE:HD), Intel Corporation (NASDAQ:INTC), NVIDIA Corporation (NASDAQ:NVDA), Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), Adobe Inc. (NASDAQ:ADBE), and Bank of America Corporation (NYSE:BAC). This group of stocks’ market caps match UNH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HD 85 4642557 -2
INTC 78 6480425 5
NVDA 92 5548398 -3
VZ 68 2973925 0
T 57 1659928 0
ADBE 104 9651462 -11
BAC 91 24357766 -4
Average 82.1 7902066 -2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 82.1 hedge funds with bullish positions and the average amount invested in these stocks was $7.9 billion. That figure was $8.3 billion in UNH’s case. Adobe Inc. (NASDAQ:ADBE) 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. UnitedHealth Group Inc. (NYSE:UNH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNH is 66.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately UNH wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UNH were disappointed as the stock returned 4.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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