5 Stocks The Best Performing Hedge Funds Are Piling Into

At Insider Monkey, we track more than 700 of the best hedge funds in the world and have developed various market-beating strategies over the years using the wealth of data we collect from their 13F filings. Our latest successful system is to select the 100 best-performing funds from the previous quarter and then identify their top 30 mid-cap stock picks. Over the past year, this strategy generated returns of 39.7%, topping the 24.1% gain registered by S&P 500 ETFs (see the details).

In this article, we’ll share a few stock picks chosen in a similar fashion in the hopes of sharing some potential breakout stocks with our readers. We’ve focused on the top-15 performing funds in our database during the fourth quarter, some of which rank among the 140 Biggest and Most Famous Activist Hedge Funds in the world. We then pinpointed five stocks that at least two of those funds were buying during the same quarter.

This list should prove especially interesting to investors seeking out ideas in the healthcare space, as four of the stocks come courtesy that sector. Without further ado, let’s begin the list of five stocks that the absolute best performing hedge funds were piling into during the fourth quarter of 2016.

SAGE Therapeutics Inc (NASDAQ:SAGE) kicks off the list, with shares of the stock having been bought by Jeffrey Jay and David Kroin’s Great Point Partners (120,790 shares for a total of 385,683 shares) and James A. Silverman’s Opaleye Management (new position of 35,000 shares). Overall, 20 hedge funds in our database owned 11.30% of Sage Therapeutic’s shares at the end of 2016, up from 18 funds long the stock a quarter earlier.

SAGE Therapeutics Inc (NASDAQ:SAGE) has had an impressive start to 2017, gaining over 35%. That run has also pushed the stock’s 1-year returns to an eye-popping 110%. Some of the gains were enjoyed thanks to CEO Jeff Jonas stating that the company has received buyout interest. William Blair analyst Tim Lugo crunched some numbers from comparable takeovers and believes a potential deal could be worth $102 per share, though he doesn’t predict any deal going down until at least the second-half of this year. SAGE-547, the company’s lead compound, is currently in phase III trials for two indications: postpartum depression and super-refractory status epilepticus. The results from those trials will likely have a huge impact on any potential acquisition. SAGE Therapeutics Inc (NASDAQ:SAGE) also has a promising major depressive disorder treatment, SAGE-217, in phase II trials.

On the next pages of this article we’ll check out the other four stocks that the best performing hedge funds had their eyes on in the fourth quarter.

Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is another stock that’s off to a tremendous start to the year, posting 45.7% gains. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) does still has some ways to go to get back to its pre-October 2016 levels, when it was trading for well over $70 a share. The company’s announcement that it would discontinue the development of revusiran caused shares to implode by nearly 50% on October 6. They’ve since regained 50% of those losses. Some top hedge funds were buyers in the fourth quarter following the collapse and have been greatly rewarded for their moves, including Eli Casdin‘s Casdin Capital (46,000 shares, lifting its holding to 85,000 shares) and Great Point Partners (new position of 51,935 shares).

Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is now focused on the development of patisiran and fitusiran, its most advanced compounds, in addition to having several other drugs in early-stage testing. Alnylam has a global development and commercialization agreement for patisiran and other RNAi therapeutics in place with Sanofi SA (ADR) (NYSE:SNY).

Next up is Global Blood Therapeutics Inc (NASDAQ:GBT), another stock which Great Point Partners, which appears to be having a tremendous quarter at first glance, bought in the fourth quarter. The fund initiated a stake of 1 million shares of Global Blood Therapeutics Inc (NASDAQ:GBT), which has gained an astounding 161% this year. Casdin Capital also added 64,000 shares to its position in the stock, lifting it to 304,000 shares.

Shares have partially soared on the back of reports earlier this year that Novo Nordisk A/S (ADR) (NYSE:NVO) may be interested in acquiring the company for as much as $45 per share (the company opened the year at just $14.42). The massive gains for the stock this year are even in spite of the fact that the company executed a $125 million spot secondary towards the end of February. Global Blood Therapeutics Inc (NASDAQ:GBT)’s GBT440 could be the first sickle cell disease treatment to hit the market in two decades. The treatment was granted orphan drug designation in Europe late last year. It also has fast track and orphan drug status in the U.S.

Loxo Oncology Inc (NASDAQ:LOXO) is yet another stock that made our list which is having a great 2017, gaining 33% so far this year. Casdin Capital was also high on this stock in the fourth quarter, adding 69,000 shares to its position, which contained 360,000 shares at the end of 2016. Opaleye Management also added 15,000 shares to its position, raising it to 125,000 shares.

Citi believes the run may be over for the stock for the time being however, as analyst Yigal Nochomovitz recently declared it to be fairly valued and downgraded it to ‘Neutral’ from ‘Buy’. Loxo Oncology Inc (NASDAQ:LOXO) is focused on targeting cancers which are caused by a genetic defect in a single gene, which it believes will give its treatments the best chance for success and to achieve best-in-class status compared to other treatment options. LOXO-101 and LOXO-195 are TRK inhibitors which have shown promising results, while LOXO-292 is an RET inhibitor.

Lastly is NetEase Inc (ADR) (NASDAQ:NTES), which bucks the trend of healthcare stocks but does not buck the trend of strong performance in 2017, as its shares have gained over 31% year-to-date. Larry Chen and Terry Zhang’s Tairen Capital bought 108,932 shares of the stock during the final quarter of 2016, giving it 130,232 shares in total, while Alex Sacerdote’s Whale Rock Capital bought 46,887 shares, ending 2016 with 312,778 shares of the stock.

NetEase Inc (ADR) (NASDAQ:NTES) is one of the largest providers of online gaming and other online services in China, which includes publishing some of Activision Blizzard, Inc. (NASDAQ:ATVI)’s popular games in the country. It also scored the Chinese publishing rights to Microsoft Corporation (NASDAQ:MSFT)’s Minecraft for five years, which could be a huge coup for the company, given Minecraft’s 100 million-strong global userbase. NetEase has also made a stronger push into the Western gaming world as well, localizing several online and mobile titles, including the strategy game Immortal Conquest and the action-RPG Eternal Arena. NetEase Inc (ADR) (NASDAQ:NTES)’s revenue jumped by 34.8% in 2016, while its net income shot up by 39.81%. The company plans to release 29 games in China this year.

Disclosure: None