The health care sector was a popular one in the fourth quarter for hedge fund managers looking for merger-arbitrage opportunities. Takeover targets like Kinetic Concepts, Adolor and Pharmasset were snatched up during the quarter, increasing health care weightings for several hedge fund managers. The merger activity is one way to explain the strong performance of the health care sector this year. Health care names in the S&P 500 rose 10.2% overall last year, according to S&P Capital IQ, the third best sector performance this year. The outlook for health care stocks, though, leaves plenty to be desired. After notching only 4.6% earnings growth in the fourth quarter, analysts are calling for 2.4% earnings growth for the sector in all of 2012. Health care stocks are trailing the broader indices this year, climbing only 3.8% in 2012 through Feb. 15. David Tepper of Appaloosa Management was a buyer of health care stocks, picking up nearly 8 million shares of Boston Scientific ( BSX). Ray Dalio was another buyer, with his Bridgewater Associates hedge fund buying shares of Johnson & Johnson ( JNJ), Watson Pharmaceuticals ( WPI) and St. Jude Medical ( STJ), among others. Louis Bacon of Moore Capital was also a big health care buyer, picking up shares of Gilead Sciences ( GILD), Express Script ( ESRX), Cigna ( CI) and WellPoint ( WLP), among several others. Renaissance Technologies, the world's largest quant fund, also upped its exposure to health care, adding to stakes in Gilead, Thermo Fisher ( TMO), Humana ( HUM), Intuitive Surgical ( ISRG) and Cigna, among others. Not all were buyers, however. Barry Rosenstein's Jana Partners liquidated a position in Covidien ( COV) and nearly dumped its entire stake in HCA Holdings ( HCA). >>To see these stocks in action, visit the Health Care Stocks Bought and Sold by Hedge Funds portfolio on Stockpickr.