OrbiMed Advisors LLC is the world’s largest healthcare-focused investment firm, managing roughly $15 billion in net assets under management. The healthcare investment firm, which started its first public equity fund in 1989, is managed by one of the most closely-watched and hallowed investors in the life sciences industry, Samuel Isaly. Mr. Isaly’s New York-based firm has been investing for more than 20 years across the entire healthcare space, from early-stage private companies to large multinational corporations. OrbiMed Advisors has been highly-successful in recent years with regard to performance, which can be attributed to the firm’s team of more than 80 scientific, medical, investment and other professionals. To be more detailed on OrbiMed’s performance, the investment firm generated an 18.9% net annualized return since January 1993 through the end of 2014, significantly above the return of 7.7% for the MSCI World Index over the same time span. For that reason, retail investors looking to engage in the business of investing in healthcare should definitely take a look at Mr. Isaly’s equity portfolio.
At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
On April 1, 2015, exactly one year ago, renowned investor Sam Isaly discussed the healthcare sector on CNBC, as well as revealed four top stock picks that his team adored at the time. Mr. Isaly told CNBC that valuations in the healthcare space were higher than in previous years, but there were not crazy – they were “sensible”. The highly-experienced investor voiced his views that the healthcare industry as a whole was not in a bubble at the time, but he did point out that there were some overvalued subsectors within the industry. According to OrbiMed’s Managing Partner, the small, discovery-stage biotech subsector, tracked by SPDR S&P Biotech ETF (XBI), was extremely overvalued at that point in time. Mr. Isaly turned out to make an accurate statement, considering that the SPDR S&P Biotech ETF is down 32% in the past 12 months. Having said that, let’s discuss the four stock picks highlighted by the healthcare-focused investor during the discussion with CNBC, which included Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), Actelion, Molina Healthcare Inc. (NYSE:MOH), and Health Net Inc. (NYSE:HNT). But why would anyone go back in time and check whether Mr. Isaly’s enthusiasm on the four companies has been rewarding? Surely, there isn’t anyone out there who can accurately predict the future, particularly when it comes to equity investing, but retail investors should get a better idea of whether hedge funds’ opinions tend to be informative and accurate or not by examining their past statements. Truth be told, investors should learn to filter sound investment theses voiced within the hedge fund industry; and this article will focus on examining Mr. Isaly’s bets (not that we seek to undermine his industry acumen).