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Endo International plc (ENDP), BioMarin Pharmaceutical Inc. (BMRN): Visium Picks Returned 13% but Net Returns Were Only 5% – Here’s Why

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The broad portfolio of Jacob Gottlieb’s Visium Asset Management enjoyed a very strong quarter, with the weighted average returns of its 817 reported positions in companies with market-caps of greater than $1 billion coming in at 13.1%. Out of the first quarter’s top 40 performing funds in our database, only one other fund held more than 50 qualifying positions entering 2015, that being Michael Novogratz’ Fortress Investment Group, whose 107 positions returned 15.6%. In the previous quarter, only one fund with more than 50 qualifying positions landed in the top 40.

Jacob Gottlieb - Visium Asset Management

Those statistics undoubtedly signify the difficulty of achieving great returns in any given quarter with such a large portfolio, as smaller portfolios are more likely to experience greater short-term fluctuations. On the other hand, Visium’s portfolio, while broad, is not overly diverse, with 60% of its holdings being healthcare stocks, the best performing market sector at the moment. Healthcare stocks returned 7.22% on average in the first quarter compared to the S&P 500 ETF’s 0.9% returns for the quarter. Even so, Visium’s returns show clear outperformance of even the healthcare sector.

However, while our metric reported estimated returns of 13.1% for Visium Asset Management, CNBC has reported the fund’s net returns as being an even  5% for the quarter. Why the discrepancy between the two figures? Well there are a number of factors. Firstly, our metric only considers reported long positions in companies with market-caps of at least $1 billion. Therefore positions consisting of call or put options are not considered, nor are long positions in companies with sub-$1 billion market-caps. Visium reported 1010 positions in total on its latest 13F, which means nearly 200 of the fund’s positions were not factored in by our metric.

Furthermore, our metric assumes no change in the fund’s qualifying long positions over the course of the quarter to calculate returns. While this is highly accurate for some funds, which have fairly minimal turnover within their portfolios, other funds like Visium are quite active, making changes to hundreds of positions each quarter. This makes the estimation of such a fund’s returns less accurate.

Lastly, we have to factor in the management and performance fees that hedge funds like Visium charge their clients, which eat into their net returns. With many funds charging fees of 2% of the fund’s total asset value as a management fee, plus an additional 20% fee on any profits, clients have multiple percentage points shaved off their net returns quarterly.

This is precisely why we encourage investors to imitate the best hedge funds and their ideas, rather than invest directly with them. And the best idea of theirs we have uncovered is to imitate the top 15 small-cap picks of a collective group of hedge funds (we now have more than 700 in our database). This strategy proved to be highly successful in backtests spanning more than 13 years of data, and in forward testing since it was officially launched at the end of August 2012, has returned over 137% and crushed the market by more than 82 percentage points through the end of March (see the details).

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