Were Hedge Funds Right About Piling Into UnitedHealth Group Inc. (UNH)?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded UnitedHealth Group Inc. (NYSE:UNH) and determine whether the smart money was really smart about this stock.

Is UnitedHealth Group Inc. (NYSE:UNH) a buy right now? The smart money was betting on the stock at the end of the first quarter. The number of long hedge fund bets went up by 13. Our calculations also showed that UNH ranked 19th 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 21st century investor’s toolkit there are dozens of signals investors put to use to grade their holdings. A pair of the most underrated signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can outperform the S&P 500 by a superb margin (see the details here).

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the new hedge fund action regarding UnitedHealth Group Inc. (NYSE:UNH).

Hedge fund activity in UnitedHealth Group Inc. (NYSE:UNH)

At Q1’s end, a total of 104 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UNH over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Lone Pine Capital held the most valuable stake in UnitedHealth Group Inc. (NYSE:UNH), which was worth $1150.6 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $882.8 million worth of shares. Orbis Investment Management, Egerton Capital Limited, and GQG Partners 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 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, setting aside 11.02 percent of its 13F equity portfolio to UNH.

Now, key money managers have jumped into UnitedHealth Group Inc. (NYSE:UNH) headfirst. Steadfast Capital Management, managed by Robert Pitts, assembled the most valuable 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 made a $79.8 million investment in the stock during the quarter. The other funds with brand new UNH positions are Robert Pohly’s Samlyn Capital, Zach Schreiber’s Point State Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as UnitedHealth Group Inc. (NYSE:UNH) but similarly valued. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 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 19.3% during the second quarter (through June 25th) 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 most of these stocks already outperformed the market in 2020.

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