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.
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).
Now then, let’s briefly go over some of Visium’s biggest performers of the first quarter. It’s not hard to see why the fund achieved such strong returns, as its top three picks all delivered big returns during the quarter. And despite that huge portfolio, those top three picks accounted for just under 16% of it. They were Endo International plc (NASDAQ:ENDP), Allergan, Inc. (NYSE:AGN), and Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP). The latter two were each sold during the quarter, which contributed to their gains of 13% and 50.35% respectively. Endo International plc (NASDAQ:ENDP) meanwhile, despite losing out on the purchase of Salix to Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which made the latter one of the top performing large-caps of the first quarter, still made big gains of 24.38% during the quarter itself. Visium’s position in Endo, the largest in its portfolio, consisted of 5.70 million shares valued at $411.14 million, and was increased by 26% during the fourth quarter. Billionaires Larry Robbins and Daniel S. Och also reported large positions in Endo International plc (NASDAQ:ENDP) as of the end of 2014, with Och’s being a new position opened during the fourth quarter.
Visium’s fourth-most valuable position was also a strong performer, as shares of Laboratory Corp. of America Holdings (NYSE:LH) shot up by 16.86% over the course of the first quarter. Visium held a position of 2.81 million shares in Laboratory Corp. of America Holdings (NYSE:LH) at the end of 2014, worth $302.90 million. The position was increased by 173% during the fourth quarter. Maxim Group recently reiterated a ‘Buy’ rating on the stock and placed a very bullish $160 price target on it, with it currently trading at $125.97. Visium was the largest shareholder in our database, though two other funds had greater exposure to the stock in their portfolios: Tony Chedraoui’s Tyrus Capital and John Shapiro’s Chieftain Capital, the former of which was a newly initiated position during the fourth quarter.
Visium’s top new pick during the fourth quarter was also one of its best performers during the following quarter. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) shares increased by a hefty 37.85% during the quarter, with the most recent spike resulting from rumors in late March that BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) could be the next pharma company to be taken over. Nothing has materialized from the rumors, and the stock has given back some of those gains in April. Still, with a large stable of orphan drug candidates, BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) looks like a good long-term bet, and Deutsche Bank agrees, having recently upped its price target on the stock to $140, showing potential upside of nearly 15% from its current trading level of $122.08. Visium’s new position of just under 988,400 shares valued at $89.35 million made it the eighth-largest in its portfolio. Julian Baker and Felix Baker’s Baker Bros. Advisors is currently the most bullish fund on the stock in our database, and has been invested in it for several years.
Disclosure: None
