London-based Cheyne Capital recently disclosed its U.S. equity portfolio via a 13F filing submitted with the SEC. Founded in 2000 by Jonathan Lourie and Stuart Fiertz, Cheyne Capital is one of the largest alternative asset management firms in Europe. According to its recent filing, the fund’s U.S. equity portfolio was worth $124.20 million at the end of the second quarter, considerably less than the $301.77 million that it was worth at the end of the first quarter. Going into the third quarter, the fund had long positions in 25 stocks, but its portfolio was extremely top-heavy, with it top-ten holdings accounting for over 90% of its portfolio’s value. The filing also revealed that healthcare and information technology were Cheyne Capital’s preferred sectors to invest in as of the end of June, with stocks from those sectors amassing 38% and 35% of the value of its equity portfolio, respectively.
Considering that the fund’s exposure to healthcare was higher than any other sector, we’ll take a look at its top-five healthcare picks and analyze their performance so far in 2016 in this article.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
RadNet Inc. (NASDAQ:RDNT)
– Shares Owned by Cheyne Capital (as of June 30): 268,907
– Value of Holding (as of June 30): $1.44 Million
Let’s start with RadNet Inc. (NASDAQ:RDNT), which was Cheyne Capital’s fifth-largest healthcare holding and its 11th-largest holding overall at the end of June. The fund increased its stake in the diagnostic imaging services company by 7% during the second quarter. RadNet’s stock has largely been range-bound in 2016 and is currently trading down marginally for the year. The company is scheduled to report its second quarter earnings this week and the consensus estimate is for it to report EPS of $0.04 on revenue of $220.09 million. For the same quarter of the previous year, RadNet delivered EPS of $0.08 on revenue of $204.30 million. On August 5, analysts at Jefferies Group reiterated their ‘Hold’ rating on the stock. A hedge fund that reduced its stake in RadNet Inc. (NASDAQ:RDNT) during the second quarter was billionaire Cliff Asness‘ AQR Capital Management, which lowered its holding by 13% to 174,730 shares.
Adamas Pharmaceuticals Inc (NASDAQ:ADMS)
– Shares Owned by Cheyne Capital (as of June 30): 114,765
– Value of Holding (as of June 30): $1.74 Million
Cheyne Capital more than doubled its stake in Adamas Pharmaceuticals Inc (NASDAQ:ADMS) during the second quarter, causing the holding to jump 16 spots in its portfolio to become the fund’s eighth-largest holding at the end of June. Adamas Pharmaceuticals has lost over half of its market capitalization this year. However, it should be noted that shares of the pharmaceutical company saw a huge rally at the end of December, appreciating by nearly 45% after it announced that its lead product candidate ADS-5102 met its primary endpoint in a late-stage LID study. Though there are some concerns about the financial health of the company at this stage, most analysts are optimistic about ADS-5102 being approved by the FDA and Adamas Pharmaceuticals Inc (NASDAQ:ADMS)’s stock performing well in the wake of that. For its second quarter, the company recently reported a loss of $0.78 per share on revenue of $0.2 million, compared to an identical EPS loss on revenue of $0.4 million in the same quarter of last year. Warren Lammert‘s Granite Point Capital initiated a stake in Adamas Pharmaceuticals during the second quarter, purchasing 224,331 shares of the company.
We’ll probe Cheyne Capital’s three favorite healthcare stocks on the next page.