Here’s Why Artisan Partners Sold its Glaukos Corporation (GKOS) Position

Artisan Partners, a high value-added investment management firm, published its ‘Artisan Small Cap Fund’ second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 4.36% was recorded by its Investor Class: ARTSX, 4.40% by its Advisor Class: APDSX, and 4.41% by its Institutional Class: APHSX for the second quarter of 2021, all above the Russell 2000® Growth Index that delivered a 3.92% return and the Russell 2000® Index that was up by 4.29% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Artisan Partners, the fund mentioned Glaukos Corporation (NYSE: GKOS) and discussed its stance on the firm. Glaukos Corporation is a San Clemente, California-based ophthalmic medical technology and pharmaceutical company with a $2.7 billion market capitalization. GKOS delivered a -21.49% return since the beginning of the year, while its 12-month returns are up by 22.26%. The stock closed at $59.09 per share on September 3, 2021.

Here is what Artisan Partners has to say about Glaukos Corporation in its Q2 2021 investor letter:

Glaukos is an ophthalmic medical technology company focused on breakthrough products and therapies to transform the treatment of glaucoma and corneal diseases. We pared our exposure during the quarter as delays in the innovation pipeline pushed new products into 2022. As of this writing, we decided to end our investment campaign in light of a disappointing reimbursement proposal from the Centers for Medicare and Medicaid Services (CMS)—significantly cutting physicians’ reimbursements for inserting the company’s iStent product, a minimally invasive stent used to treat glaucoma. While the company is hopeful for better reimbursement in the final CMS ruling expected in late October/early November, we decided to end our investment campaign given our lack of visibility into growth over the next 18 months.”

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Based on our calculations, Glaukos Corporation (NYSE: GKOS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GKOS was in 19 hedge fund portfolios at the end of the first half of 2021, compared to 18 funds in the previous quarter. Glaukos Corporation (NYSE: GKOS) delivered a -19.77% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.