Major U.S. Hedge Funds Trim Healthcare Stocks During The Rally In Q2

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Multiple large-name hedge fund investors cut their stakes in healthcare companies in Q2 as the sector led the wide U.S. stock market higher, rebounding among a Republican effort to cancel and replace President Obama’s signature health care law.

On Monday, according to quarterly filings, Jana Partners sold all of its shares in nine healthcare companies, ranging from small-cap biotech company Acadia Pharmaceuticals Inc. (ACAD.O) to WebMD Health Corp (WBMD.O), and Aetna Inc. (AET.N).

Billionaire Daniel Loeb’s Third Point sold 175,000 shares, or approximately 18 percent of its position, in health insurance company Humana Inc. (HUM.N) and 5 million shares of Baxter International Inc. (BAX.N) or roughly 10% of its last position. Shares of both companies have gained than 20 percent year to date.

According to the filings, Farallon Capital Management LLC, founded by Tom Steyer, dissolved its stakes in pharmaceuticals companies Eli Lilly and Co (LLY.N) and Bristol-Myers Squibb Co. (BMY.N). The hedge fund also sold stakes in AstraZeneca Plc. (AZN.L) and Allergan Plc. (AGN.N).

Healthcare stocks in the S&P 500 increased 6.7 percent in the second quarter, more than double the 2.6 percent advance in the broad S&P 500 index, after following the broad market Donald Trump’s surprise win in the presidential election.

Senate Republicans delayed a vote on healthcare overhaul bill at the end of June after it became transparent that they didn’t acquire enough votes for it pass. 30 days later, a revised plan to replace Obama’s Affordable Care Act didn’t pass in the Senate.

Healthcare stocks have underachieved since the current quarter started on July 1, dropping 0.5 percent in comparison to a 1.9 percent increase by the general S&P 500, hinting that the move by hedge fund managers could indicate the end of the run.

“If sentiment from certain institutional investors weakens for healthcare it could negatively impact stocks” despite the sector’s strong fundamentals, stated Todd Rosenbluth, director of mutual fund research at CFRA Research.

As a whole, hedge funds advanced 1 percent in the second quarter, according to Chicago-based fund tracker Hedge Fund Research, less than 50% of the 2.5 percent increase in the first quarter.

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