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.
Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)
– Shares Owned by Cheyne Capital (as of June 30): 40,000
– Value of Holding (as of June 30): $2 Million
Moving on, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) was a new entrant to Cheyne Capital’s equity portfolio during the second quarter. Shares of the Israeli drug major have declined considerably since making their lifetime high of $71.08 around this time last year and are currently trading down by 20% year-to-date, which has helped increase the annual dividend yield of the company to 2.55%. Last month the Federal Trade Commission (FTC) approved Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA)’s acquisition of Allergan plc Ordinary Shares (NYSE:AGN)’s generic pharma unit, following which the completion of the $40.5 billion deal was announced last week. On August 4, Teva Pharmaceutical reported its second quarter results, declaring EPS of $1.25 on revenue of $5 billion, topping analysts’ expectations of EPS of $1.20 on revenue of $4.86 billion. John Zaro‘s Bourgeon Capital upped its holding in Teva Pharmaceutical by 22% to 66,200 shares during the second quarter.
LivaNova PLC (NASDAQ:LIVN)
– Shares Owned by Cheyne Capital (as of June 30): 128,315
– Value of Holding (as of June 30): $6.45 Million
LivaNova PLC (NASDAQ:LIVN) was the only stock among Cheyne Capital’s five largest healthcare holdings in which the fund reduced its stake during the second quarter, by 45%. However, despite that, the company climbed four spots to become Cheyne Capital’s fifth-largest holding at the end of June. The United Kingdom-based medical technology company had its IPO last October, following which its stock started drifting lower. That downtrend in the stock ended last month, when it started rising swiftly in anticipation of the company’s second quarter results. Owing largely to that recent rise, the stock is currently trading with marginal gains this year. LivaNova PLC (NASDAQ:LIVN) reported second quarter EPS of $0.87 on revenue of $321 million, beating analysts’ EPS estimate by $0.15 and their consensus revenue estimate by $8.36 million. Following the earnings release, analysts at Piper Jaffray reiterated their ‘Overweight’ rating on the stock while upping their price target on it to $70 from $59 on August 5, which represents a potential upside of 15.8%. There were 23 hedge funds in our database which held a position in LivaNova at the end of the second quarter, owning 18.30% of its shares in aggregate.
Alere Inc (NYSE:ALR)
– Shares Owned by Cheyne Capital (as of June 30): 2.55 Million
– Value of Holding (as of June 30): $35.21 Million
After having initiated a stake in Alere Inc (NYSE:ALR) during the first quarter, Cheyne Capital proceeded to boost it by 11% during the second quarter. Shares of the medical diagnostics company spiked by 45% in early-February after Abbott (NYSE:ABT) announced that it had agreed to acquire Alere for $56 per share or $5.8 billion in an all-cash deal. However, the stock has given up all of those gains in the last few months after the company delayed filing its 2015 annual report and rumors of Abbott (NYSE:ABT) pulling out of the acquisition started surfacing. At the end of last month, the Wall Street Journal reported that Alere is facing a criminal probe over its Medicare and Medicaid billing. On August 8, the same day that the company filed its delayed 2015 results and revised its financial filings for the last two years, CNBC reported that Abbott (NYSE:ABT) is indeed planning to cancel its deal with Alere by taking the latter to court over its control issues. Another hedge fund that increased its stake in Alere Inc (NYSE:ALR) during the second quarter was billionaire Mario Gabelli‘s GAMCO Investors, which upped its holding by 7% to 528,225 shares.