Is UnitedHealth Group Inc. (UNH) Worthy of Your Portfolio?

Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Is UnitedHealth Group Inc. (NYSE:UNH) a buy here? The smart money seems to be getting less optimistic, as the number of long hedge fund bets decreased by three to 52 during the third quarter. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Citigroup Inc. (NYSE:C), PetroChina Company Limited (ADR) (NYSE:PTR), and HSBC Holdings plc (ADR) (NYSE:HSBC) to gather more data points.

If you’d ask most market participants, hedge funds are viewed as worthless, old investment vehicles of years past. While there are more than 8000 funds in operation today, Our researchers choose to focus on the elite of this group, around 700 funds. Most estimates calculate that this group of people handle the lion’s share of the hedge fund industry’s total asset base, and by tracking their top picks, Insider Monkey has come up with several investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points annually for a decade in their back tests.

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With all of this in mind, we’re going to view the key action regarding UnitedHealth Group Inc. (NYSE:UNH).

How are hedge funds trading UnitedHealth Group Inc. (NYSE:UNH)?

As already mentioned, at the end of the third quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, down by 5% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Boykin Curry’s Eagle Capital Management has the largest position in UnitedHealth Group Inc. (NYSE:UNH), worth close to $985.1 million, corresponding to 4.2% of its total 13F portfolio. Sitting at the No. 2 spot is Cliff Asness’ AQR Capital Management, with a $437.1 million position; 0.7% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish encompass Phill Gross and Robert Atchinson’s Adage Capital Management, Robert Pohly’s Samlyn Capital and Tom Gayner’s Markel Gayner Asset Management.

Seeing as UnitedHealth Group Inc. (NYSE:UNH) has witnessed bearish sentiment from the smart money, it’s safe to say that there were a few hedge funds who sold off their positions entirely last quarter. Intriguingly, Leon Cooperman’s Omega Advisors dumped the largest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $69.7 million in ‘call’ options.. Ken Griffin’s fund, Citadel Investment Group, also unloaded all of its call options, about $41.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as UnitedHealth Group Inc. (NYSE:UNH) but similarly valued. These stocks are Citigroup Inc. (NYSE:C), PetroChina Company Limited (ADR) (NYSE:PTR), HSBC Holdings plc (ADR) (NYSE:HSBC), and Bristol Myers Squibb Co. (NYSE:BMY). This group of stocks’ market valuations are closest to UNH’s market valuation.

As you can see these stocks had an average of 45 funds with long positions at the end of September and the average amount invested in these stocks was $3.02 billion. That figure was $2.70 billion in UNH’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table with 97 funds holding shares. On the other hand PetroChina Company Limited (ADR) (NYSE:PTR) is the least popular one with only 11 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard Citigroup might be a better candidate to consider a long position.