Among some 800 hedge funds we track at Insider Monkey, we seldom come across funds that specialize in investing in a particular sector or have a penchant for investing in companies that trade above or below a particular market capitalization. However, it’s rare to find a fund that has a long track record of investing primarily in two or three different sectors that are uncorrelated with each other. And that’s exactly what makes William Michaelcheck‘s Mariner Investment Group special. In the past few years that we have been tracking the equity portfolio of the New York-based fund, we found that the fund normally allocates a large amount of capital it manages only towards two sectors – finance and healthcare. The latest 13F filing submitted by Mariner Investment Group with the Securities and Exchange Commission (SEC) goes on to reinforce this notion. According to the filing, the fund’s US equity portfolio at the end of March was worth $362.55 million and 59% and 31% of it comprised of stocks from financial and healthcare sectors, respectively. Since healthcare is one of the sectors that Mariner Investment Group specializes in and stocks from the sector have been beaten down aggressively this year, in this post, we will go through the fund’s top five healthcare stock picks at the end of the first quarter and try to decipher what makes it bullish on them.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Baxalta Inc (NYSE:BXLT)
– Shares held by Mariner Investment Group (as of March 31): 142,000
– Value of Holding (as of March 31): $5.73 million
Let’s start with Baxalta Inc (NYSE:BXLT), in which Mariner Investment Group increased its stake by 137% during the fourth quarter. Shares of the biopharmaceutical company are currently trading up by over 8% year-to-date with over half of those gains coming in after the company reported its first-quarter numbers on April 28. Baxalta Inc (NYSE:BXLT), was spun off from Baxter International Inc (NYSE:BAX) in July last year and at the beginning of 2016 UK-based drugmaker Shire announced that it would acquire the company in a $32 billion cash-and-stock deal, which valued Baxalta at $47.50 per share. After the Allergan-Pfizer merger was called off in April, Shire reiterated its commitment to acquire Baxalta and said that it expects the deal to get completed in the middle of 2016 as it had previously announced. For its first quarter, Baxalta beat analysts’ estimates of EPS of $0.46 on revenue of $1.47 billion by reporting EPS of $0.47 on revenue of $1.50 billion. Andy Redleaf‘s Whitebox Advisors initiated a stake in Baxalta Inc during the first quarter by purchasing 500,000 shares.
#4 Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ)
– Shares held by Mariner Investment Group (as of March 31): 45,000
– Value of Holding (as of March 31): $5.87 million
Though Mariner Investment Group didn’t increase its stake in Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) during the first quarter, it would be patting itself on the back for not selling any shares in the company either. That’s because shares of Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) saw an over 15% rally in April and thanks to that are currently trading up by over 4% year-to-date. The rally in the stock started on March after the FDA approved the company’s drug ‘Defitelio’ for the treatment of patients who develop hepatic veno-occlusive disease (VOD) with additional lung or kidney problems, following hematopoietic stem cell transplantation (HSCT). The company scored another minor victory in mid-April when the U.S. Patent and Trade Office dismissed claims 1-18 of the 34 claims filed by India-based Ranbaxy against the validity of a patent awarded to Jazz Pharmaceuticals ‘s top-selling narcolepsy drug, Xyrem. This was followed by another positive news near the end of the month, when on April 25, analysts at SunTrust Robinson Humphrey upgraded the stock to a ‘Buy’ from ‘Neutral’ and also raised their price target on it to $200 from $164.