The practice of monitoring quarterly 13F filings has become more popular in recent years, which led to several exchange traded funds (ETFs) being launched. The research conducted by Insider Monkey stresses the value and usefulness of these quarterly filings, but 13D filings can offer even more valuable and up-to-date insights about hedge funds’ stances on their conviction stock picks. Activist targets have been proven to greatly outperform the broader market on aggregate, but investors’ ability to identify and pin down the most evident alpha-rich ideas from 13D filings may generate even higher returns. For that reason, this article will discuss two activist filings (13D) and one passive filing (13G) submitted by several hedge fund investors monitored by our team.
We track hedge funds and prominent investors 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 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real-time and these stocks have beaten the market by 53 percentage points (102% return vs. the S&P 500’s 48.7% gain) over the last 38 months (see the details here).
According to a 13D filing, Peter Kolchinsky’s RA Capital Management owns 7.09 million shares of Wave Life Sciences Ltd (NASDAQ:WVE), which represent 33.9% of the now-public company’s outstanding common stock. Most of these shares were acquired in a private placement at the beginning of January. It is also worth pointing out that Kolchinsky is a member of the company’s Board of Directors. The preclinical biopharmaceutical company that uses a proprietary synthetic chemistry drug development platform to design and develop a wide array of nucleic acid therapeutic candidates went public on November 11, selling nearly 6.38 million shares to the public at an IPO price of $16 per share. The ordinary shares started trading on the NASDAQ on the same day and are currently trading slightly above the IPO price. Wave Life Sciences Ltd (NASDAQ:WVE)’s team asserts that nucleic acid therapeutics have the potential to deal with and treat diseases that are difficult to treat with small molecule drugs or biologics. Thus, the company is focused on developing single-stranded nucleic acid therapeutics that could be broadly distributed within the human body and target diseases across multiple organ systems and tissues. However, a potential investment in Wave Life Sciences is quite risky, as the company’s approach is quite novel, which makes it substantially harder to develop marketable product candidates.
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Let’s head to the second page, where we disclose Dalton Investments’ move on a global company in the Indian film entertainment industry and Eminence Capital’s freshly-acquired stake in a hotel operator.