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Were Hedge Funds Right About Souring On Humana Inc (HUM)?

We at Insider Monkey have gone over 821 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 March 31st, near the height of the coronavirus market crash. 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 Humana Inc (NYSE:HUM) and determine whether the smart money was really smart about this stock.

Humana Inc (NYSE:HUM) has seen a decrease in hedge fund sentiment of late. HUM was in 70 hedge funds’ portfolios at the end of the first quarter of 2020. There were 75 hedge funds in our database with HUM holdings at the end of the previous quarter. Our calculations also showed that HUM isn’t 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BRIDGER MANAGEMENT

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. With all of this in mind let’s take a glance at the key hedge fund action regarding Humana Inc (NYSE:HUM).

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

Heading into the second quarter of 2020, a total of 70 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in HUM a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is HUM A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Humana Inc (NYSE:HUM), which was worth $1108.2 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $679.6 million worth of shares. AQR Capital Management, Maverick Capital, and Diamond Hill 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 MIC Capital Partners allocated the biggest weight to Humana Inc (NYSE:HUM), around 11.83% of its 13F portfolio. BloombergSen is also relatively very bullish on the stock, dishing out 8.25 percent of its 13F equity portfolio to HUM.

Seeing as Humana Inc (NYSE:HUM) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers that decided to sell off their positions entirely heading into Q4. At the top of the heap, Daniel S. Och’s OZ Management cut the largest investment of all the hedgies monitored by Insider Monkey, valued at an estimated $80.3 million in stock. Roberto Mignone’s fund, Bridger Management, also said goodbye to its stock, about $45.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Humana Inc (NYSE:HUM). These stocks are Truist Financial Corporation (NYSE:TFC), Relx PLC (NYSE:RELX), Baxter International Inc. (NYSE:BAX), and PNC Financial Services Group Inc. (NYSE:PNC). All of these stocks’ market caps are similar to HUM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFC 34 551498 -1
RELX 5 97388 -2
BAX 50 3209249 3
PNC 40 1263969 -2
Average 32.25 1280526 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1281 million. That figure was $4247 million in HUM’s case. Baxter International Inc. (NYSE:BAX) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 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 gained 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on HUM, though not to the same extent, as the stock returned 19.8% in Q2 (through June 25th) and outperformed the market as well.

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