The healthcare sector has appreciated by more than 14% so far this year, so we decided to take a look at how healthcare funds are gearing their portfolios heading into the second half of the year. We picked Mitchell Blutt‘s Consonance Capital Management, a New York-based long/short hedge fund which was founded by Blutt in 2005. Currently around 88% of Consonance’s public equity portfolio is invested in the healthcare sector, including investments in payors, pharmaceutical, specialty distributors, and device manufacturers. The firm also provides private equity financing including growth capital and leverage buyout. Regulatory assets under the fund’s management amount to $695 million. Let’s take a look at the fund’s top picks as of June 30, which include Retrophin Inc (NASDAQ:RTRX), Insys Therapeutics Inc (NASDAQ:INSY), and Eagle Pharmaceuticals Inc (NASDAQ:EGRX).
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 123% over the last 35 months and outperformed the S&P 500 Index by 65 percentage points (see the details here).
During the June quarter Consonance increased its position in its largest holding, Retrophin Inc (NASDAQ:RTRX), by 9% to 3.40 million shares valued at $112.72 million. The stake represents 11.33% of the fund’s portfolio value and amasses more than 9% of the company’s outstanding shares. The $1.08 billion biopharmaceutical company’s stock price has surged by more than 147% so far this year. Recently, Retrophin Inc (NASDAQ:RTRX) sold its Rare Pediatric Disease Priority Review Voucher to Sanofi for $245 million, payable via an upfront fee of $150 million plus two additional payments of $47.5 million in each of 2016 and 2017. Kevin Kotler‘s Broadfin Capital is the second-largest stockholder of Retrophin Inc (NASDAQ:RTRX) within our database after Consonance, holding some 2.96 million shares valued at $70.98 million.