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Were Hedge Funds Right About Humana Inc (HUM)?

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 (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Humana Inc (NYSE:HUM).

Humana Inc (NYSE:HUM) has seen an increase in support from the world’s most elite money managers of late. Our calculations also showed that HUM 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.

GLENVIEW CAPITAL

Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 view the fresh hedge fund action surrounding Humana Inc (NYSE:HUM).

What does smart money think about Humana Inc (NYSE:HUM)?

At Q4’s end, a total of 75 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 46 hedge funds with a bullish position in HUM a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in Humana Inc (NYSE:HUM), worth close to $1.0817 billion, corresponding to 0.8% of its total 13F portfolio. The second most bullish fund manager is Lone Pine Capital, holding a $539.8 million position; the fund has 2.9% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass Cliff Asness’s AQR Capital Management, Larry Robbins’s Glenview Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position MIC Capital Partners allocated the biggest weight to Humana Inc (NYSE:HUM), around 9.72% of its 13F portfolio. Tavio Capital is also relatively very bullish on the stock, earmarking 9.23 percent of its 13F equity portfolio to HUM.

Now, key money managers have jumped into Humana Inc (NYSE:HUM) headfirst. Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, Graham McPhail, initiated the most outsized position in Humana Inc (NYSE:HUM). Rock Springs Capital Management had $67.8 million invested in the company at the end of the quarter. Andreas Halvorsen’s Viking Global also made a $38 million investment in the stock during the quarter. The other funds with new positions in the stock are Christopher James’s Partner Fund Management, Mubadala Investment’s MIC Capital Partners, and Jacob Doft’s Highline Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Humana Inc (NYSE:HUM) but similarly valued. We will take a look at Waste Management, Inc. (NYSE:WM), Aon plc (NYSE:AON), Kinder Morgan Inc (NYSE:KMI), and Capital One Financial Corp. (NYSE:COF). This group of stocks’ market values are similar to HUM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WM 32 3261844 -20
AON 51 2627235 6
KMI 40 1360313 2
COF 50 2041230 3
Average 43.25 2322656 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $2323 million. That figure was $4982 million in HUM’s case. Aon plc (NYSE:AON) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Humana Inc (NYSE:HUM) 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on HUM as the stock returned 0.4% so far in 2020 (through April 20th) 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.

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