Why The World's Top-Performing Hedge Fund Loves Obamacare

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From a financial perspective, 2013 was a banner year for many investors.

Increased economic confidence, recovering housing markets and super-sized returns from the major indices made the recession of 2008 all but a distant memory.

The S&P 500 delivered a gain of nearly 30%, propping up retirement accounts and prompting even greater inflows into funds of all kinds: index, mutual and hedge. As is typical after the end of each year, we're inundated with rankings and commentary to see just how these asset managers actually performed -- a tough comparison when passive investments gave such outsized returns with little to no fees.

Exceptional stock-picking, properly managed risk, and a long-only bias separated the gurus from the rest of the pack -- and one manager stood out handily from his peers, grabbing the top spot as the best-performing large hedge fund, according to Bloomberg.

Larry Robbins of Glenview Capital Management delivered an astounding 84% return with his Capital Opportunity Fund. How'd he do it? By going long the health care industry, betting it would get a boost from the passing of the Affordable Care Act. Fortunately for Robbins and his investors, it did just that.

His latest Form 13F shows that he's not done buying up health care stocks just yet, and he's been vocal about his optimism for 2014 as well. Let's take a closer look at some of his latest buys.

WellPoint (NYSE: WLP ) was the biggest new position that Robbins made in the first quarter of this year, committing over $420 million to the largest health benefits company in the Blue Cross Blue Shield Association. Many observers thought WellPoint would struggle under Obamacare, but the company expects over 1 million new customers this year.

Robbins expects the worst is behind WellPoint. The stock price seems to agree, registering a gain of nearly 17% this year. This leaves WLP trading at 12 times forward earnings, relatively low compared to its peers. Additionally, WellPoint pays a small dividend of 1.6%.

UnitedHealth Group (NYSE: UNH ) possesses some of the same operational qualities as WellPoint. Glenview Capital invested about $140 million into the diversified health care company, joining billionaires Leon Cooperman and Mario Gabelli among UNH investors.

UnitedHealth Group will be pushing to expand the state exchanges it operates on in 2014 and 2015, increasing its offerings to the next wave of ACA enrollees. From a shareholder standpoint, UNH has announced positive news recently in the forms of a renewed share buyback program, as well as a 34% increase in its dividend, bringing the yield up to 1.9%.

Quest Diagnostics (NYSE: DGX ) , the clinical laboratory services company, was allocated about $110 million of Robbins' assets under management, making it the eighth-largest new position originated by Glenview last quarter. Unlike WLP and UNH, DGX hasn't had the same increases in stock price looking back a year: Shares are down slightly over the past 12 months.

WLP Chart

Quest stands out, however, in that it offers one of the highest dividends amongst Glenview's newest positions, paying 2.3% to investors. Despite lackluster earnings lately, some equity analysts are optimistic about the long-term outlook of Quest Diagnostics as baby boomers become a wider part of the company's client base.

Risks to Consider: As every prospectus or investment disclaimer will tell you, past performance is not indicative of future results. Many hedge fund managers have had standout years only to follow them with dismal results in ensuing periods -- John Paulson and his post-subprime bets come to mind.

Action to Take --> With enrollment goals shattered and the issues plaguing Healthcare.gov resolved, the previous hiccups of Obamacare have now led to a gust of wind propping up most of the industry as a whole. Robbins, the current man of the hour, continues to see some easy money on the horizon, so do your own research to figure out whether these three stocks (or other health care names) belong in your portfolio.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

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