The U.S equities markets have seriously pulled back lately, so hedge funds and other investors are stumbling upon a greater number of quality investing opportunities. In the following article, we will closely examine the bullish moves made by two reputable hedge funds observed tracked by the Insider Monkey team, in investments they feel are just that. James E. Flynn’s Deerfield Management initiated a new passive stake in Regenxbio Inc (NASDAQ:RGNX), which is comprised of 1.34 million shares. This stake adds up to 5.11% of the company’s outstanding common stock. In the meantime, a separate 13D filing disclosed that Richard McGuire’s Marcato Capital Management holds an ownership stake of 6.05 million shares in LPL Financial Holdings Inc (NASDAQ:LPLA), accounting for 6.3% of its outstanding shares. LPL represents a new stock pick for the investment firm.
We follow hedge funds like Deerfield Management and Marcato Capital Management because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 118%, outperforming the S&P 500 ETF by over 60 percentage points (see more details here).
Prior to discussing the companies of note, let’s provide a brief overview of James Flynn’s investment firm. Deerfield Management is a healthcare-focused hedge fund started with $17 million in equity back in 1994. The New York-based investment firm was founded by Arnold Snider, who stepped down in 2005 and left the managing director role to Flynn. The relationship-based investor manages a public equity portfolio worth $3.0 billion as of June 30.
We can now turn our full attention to Deerfield Management’s recent bet. Regenxbio Inc (NASDAQ:RGNX) is a biotechnology company that engages in the development, commercialization and licensing of recombinant adeno-associated virus (AAV) gene therapy. Just a few days ago, the company started trading on the NASDAQ Stock Market under the symbol “RGNX”, after the company sold 6.3 million shares at an IPO price of $22 per share. Furthermore, given that underwriters hold an additional 945,000 greenshoe options, the biotechnology company’s capital from the IPO might reach $159.4 million. The net proceeds will be used to fund the development of therapeutic applications of the company’s AAV platform technology, which might enable Regenxbio to develop NAV Gene Therapy treatments for a wide spectrum of diseases.
It is worth mentioning that a potential investment in an early-stage biotech’s shares is associated with numerous risks. The company’s internal product candidates have not been examined in any clinical studies, while its lead product candidates have incomplete preclinical results. At the same time, the company has delivered net losses in almost every quarter since its inception and anticipates posting significant losses in the upcoming quarters as well, though this is essentially the norm until small biotech’s strike licensing deals with bigger ones or bring products to market and begin pulling in revenue. The upside potential is immense should Regenxbio be successful in bringing its product candidates to the market.