UnitedHealth Group (UNH): Were Hedge Funds Right About This Stock?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 28th, 2019. In this article we are going to take a look at smart money sentiment towards UnitedHealth Group Incorporated (NYSE:UNH).

Is UnitedHealth Group Incorporated (NYSE:UNH) undervalued? Prominent investors are taking a pessimistic view. The number of long hedge fund positions decreased by 4 lately. Our calculations also showed that UNH isn’t among the 30 most popular stocks among hedge funds. UNH was in 68 hedge funds’ portfolios at the end of the second quarter of 2019. There were 72 hedge funds in our database with UNH holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the new hedge fund action encompassing UnitedHealth Group Incorporated (NYSE:UNH).

What does smart money think about UnitedHealth Group Incorporated (NYSE:UNH)?

Heading into the third quarter of 2019, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2019. On the other hand, there were a total of 68 hedge funds with a bullish position in UNH a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with UNH Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andreas Halvorsen’s Viking Global has the biggest position in UnitedHealth Group Incorporated (NYSE:UNH), worth close to $1.1742 billion, accounting for 5.3% of its total 13F portfolio. The second largest stake is held by Lone Pine Capital, managed by Stephen Mandel, which holds a $920.5 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism include Boykin Curry’s Eagle Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management.

Since UnitedHealth Group Incorporated (NYSE:UNH) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who were dropping their entire stakes heading into Q3. At the top of the heap, Jim Simons’s Renaissance Technologies said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, valued at close to $306.6 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund cut about $72.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to UnitedHealth Group Incorporated (NYSE:UNH). These stocks are The Home Depot, Inc. (NYSE:HD), The Coca-Cola Company (NYSE:KO), Merck & Co., Inc. (NYSE:MRK), and Intel Corporation (NASDAQ:INTC). 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
HD 53 3714136 -5
KO 48 22584402 0
MRK 70 4860053 6
INTC 43 3500915 -19
Average 53.5 8664877 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.5 hedge funds with bullish positions and the average amount invested in these stocks was $8665 million. That figure was $6312 million in UNH’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Intel Corporation (NASDAQ:INTC) is the least popular one with only 43 bullish hedge fund positions. UnitedHealth Group Incorporated (NYSE:UNH) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UNH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNH were disappointed as the stock returned -10.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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