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What do the top hedge fund and mutual fund gurus like in the medical services industry? This article, the 30th in a series, identifies through a research of the latest available institutional 13-F filings the gurus that are most invested in the medical services industry and the specific stocks within that industry that they prefer to hold in their portfolios. Please note that I have also included in this group managed care providers such as HMOs, pharmacy benefit management companies, clinical research outsourcing companies and operators of medical services facilities such as hospitals as well as home health care providers.

Also, please note that this article will be among the last in this series, as the latest March 2011 quarter 13-F Institutional filings are now beginning to come out. About 40% were out as of this weekendand most should be filed by the end of this week. As such, once 13-F filings are complete for all guru funds, in the next series starting the end of this week to the beginning of next week, I will bring to you the "Top New and Added Picks" of guru funds by industry/sector detailing this time not the top holdings, but more importantly what new positions they took and what existing positions they added to in the latest March 2011 quarter. Please check my article page for previous articles in this series.

A guru is defined as someone who is regarded as having great knowledge, wisdom and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus including long-term performance, low portfolio volatility and an elite reputation in the investment community.

Many of us are familiar with leading investors and hedge fund managers such as Warren Buffet, George Soros, Carl Icahn and Julian Robertson, but the hedge fund community alone includes over 9,000 funds; add in mutual funds, ETFs and other investment entities and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than one percent or between 100 to 200 fund managers are commonly believed by the larger investment community to have earned the distinction of being called gurus.

The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth deploying large sums of capital from their funds on a regular basis. They have a long-term track record of successand while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.

The total capitalization of the U.S. equity markets is somewhere in the $15 trillion rangeand the total market capitalization of medical services companies is $310 billion or 2.1% of the overall market. The table lists the top seven investment gurus whose funds have invested at least 6.3% or three times the average. The following is a list of the top medical services company picks of guru funds over-concentrated in that sector:

  • Managed care providers UnitedHealth Group Inc. (NYSE:UNH), a provider of managed healthcare services through HMO and government contracts to over 75 million members in the U.S.; Wellpoint Inc. (WLP), a provider of managed healthcare services through PPO, HMO and POS, indemnity and other hybrid plans to 33.3 million members; Cigna Corp. (NYSE:CI), a provider of managed healthcare services through HMO, PPO, POS and indemnity plans to 12.47 million member; Humana Inc. (NYSE:HUM), a provider of managed healthcare services through HMO, PPO and government contracts to about 10.2 million members in the U.S.; and Health Net Inc. (NYSE:HNT), a provider of managed health care services through HMO, PPO, POS and indemnity plans to 6.0 million members across the Country.
  • Pharmacy benefit management providers Medco Health Solutions (NYSE:MHS), a provider of pharmacy benefit management services to employers, health plans, unions, government agencies and individuals; and Omnicare Inc. (NYSE:OCR), a provider of pharmacy distribution and consulting services to long-term care centers and hospitals in 47 states and D.C.
  • Clinical Research Outsourcing Companies or CROs Charles River Labs International (NYSE:CRL), a provider of outsourced preclinical and Phase I services, animal research models and associated services; and Laboratory Corporation of America (NYSE:LH), a provider of clinical testing services via a national network of 51 primary laboratories and over 1,700 service sites.
  • Hospital companies Lifepoint Hospitals Inc. (NASDAQ:LPNT), an operator of 52 general acute care hospitals providing medical and surgical services in 17 states; and Rehabcare Group Inc. (NYSE:RHB), a provider of rehabilitation program management in over 1,250 hospitals, nursing homes and other long-term care facilities, being acquired by rival Kindred Healthcare Inc. (NYSE:KND), an operator of 89 long-term acute care hospitals in 24 states and 226 skilled nursing center in 28 states.
  • Outpatient and Home medical services providers Lincare Holdings Inc. (NASDAQ:LNCR), a provider of oxygen and other respiratory therapy to patients at home through 1,090 operating centers in 48 states; and Amedisys Inc. (NASDAQ:AMED), a provider of home nursing services through 486 home health agencies and 67 hospice offices in 45 states.
  • Davita Inc. (NYSE:DVA), a provider of dialysis services to patients with end stage renal disease via 1,612 outpatient dialysis centers in 42 states.

Table

Fund and Guru

Type of Fund

Assets Under Management

Percent Equity Portfolio invested in Equities of medical services Companies

Major medical services company positions in Portfolio

Glenview Capital (Larry Robbins)

hedge fund – Multi-strategy

$ 6.4 billion

10.2%

DVA, CI, WLP, LH, MHS, LNCR

Brave Warrior Capital, Inc. (Glenn Greenberg)

hedge fund

$ 1.2 billion

9.9%

LH

Muhlenkamp & Co., Inc (Ronald Muhlenkamp)

mutual fund

$ 710 million

9.2%

UNH, LH, AMED

Snow Capital Management, LP (Richard Snow)

mutual fund

$ 2.7 billion

8.3%

HNT, UNH, LPNT, RHB (being acquired by KND)

Jana Partners LLC (Barry S. Rosenstein)

hedge fund - Event Driven

$ 1.9 billion

8.3%

CRL

Wallace R Weitz & Co (Wallace Weitz)

mutual fund - Value Investing

$ 2.3 billion

7.2%

OCR, LH

Hussman Econometrics Advisors, Inc. (John Hussman)

mutual fund

$ 6.3 billion

7.0%

HUM, WLP, UNH, LH

Hedge fund Glenview Capital Management, founded in 2001 by CEO Larry Robbins, is a multi-strategy fund focused on making large bets on large-cap stocks, often taking an activist approach to some of their large bets. The fund assets of almost $7 billion are concentrated in usually 60-80 positionsand are split between Glenview Funds, a short fundand Little Arbor Funds, a multi-strategy fund.

Brave Warrior Capital, a hedge fund co-founded in 1984 by guru Glenn Greenberg and John Shapiro, maintains a highly concentrated portfolio of 11 holdings. Mr. Greenberg describes that as a defense against ignoranceand maintains that the more companies you own the less you know about eachand the less you know about a business the more you are likely to make a mistake out of fear or greed.

Muhlenkamp, established in 1977 by founder and President Ronald H. Muhlenkamp, provides the 100% no-load mutual fund, Muhlenkamp Fund, as well privately managed accounts. An award-winning investment manager, frequent guest of the mediaand featured speaker at investment shows nationwide, he is a patient value investor with most stocks in his portfolio staying there an average of 10 years.

Jana Partners LLC, a hedge fund co-founded by guru Barry S. Rosenstein 2001 with partner Gary Claar invests in event-driven strategies, meaning that the fund finds opportunity in corporate transactional events such as consolidations, acquisitions, recapitalizations, bankruptcies and liquidations in selecting its investments.

Omaha, NE-based Wallace R. Weitz & Co, founded in 1983 by guru Wallace Weitz, manages assets for the Weitz Funds, individuals, corporations, pension plans, foundation and endowments. They seek understandable, well-managed, cash-generating businessesand base their investment decisions on the present value of the future free cash that the business will generate.

Dr. Hussman founder of Hussman Econometrics Advisors manages the Hussman Funds which are diversified, no-load mutual funds for investors seeking long-term investment returns, with added emphasis on capital protection in unfavorable market conditions. Prior to managing the Hussman Funds, he was a former professor at the University of Michigan. He is widely known for his criticism of the U.S. Treasury and the Federal Reserve and for predicting the 2008-2009 U.S. Recessionand as of late 2009, he is calling for another financial crisis due to bad policy choices made by the US government.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix by Edgar Online, Zacks Investment Research, DailyGraphs, Thomson Reuters and Briefing.com. Fund data including assets under management and firm profiles are sourced mostly from Hedgetracker.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top Medical Services Picks by Fund Gurus Concentrated in the Sector