New Additions Highlight Kyle Bass’ Top Stock Picks for Q4

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Kyle Bass of Hayman Advisors is one investment manager with great cachet, which includes having a chapter dedicated to him in Michael Lewis’ post 2007-08 financial crises book ‘Boomerang’. After all, Bass’ short bets surrounding subprime mortgages helped him return a whopping 212% in 2007. According to his fund’s latest 13F filing, the market value of its public equity portfolio stood at $216.66 million at the end of September, with 45% of it being represented by the healthcare sector. Let’s take a closer look at Hayman’s top holdings heading into the fourth quarter.

Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 102% over the last 38 months, which is more than 53 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

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#5 BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

Shares held (as of September 30): 129,501

Total Value (as of September 30): $13.64 million

Bass acquired some 119,600 shares of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) during the September trimester. The stock of the $15.53 billion biotechnology company is up by more than 5% over the last 12 months, which doesn’t compare favorably with the over 19% average gains posted by the industry. Among about 730 hedge funds that we track, Baker Bros. Advisors, managed by brothers Julian Baker and Felix Baker, is the larger stockholder of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), owning almost 4.08 million shares.

#4 GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH)

Shares held (as of September 30): 210,715

Total Value (as of September 30): $19.25 million

His firm’s newly-initiated stake in GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) represented about 8.9% of Bass’ portfolio. Late last month, ROTH Capital initiated coverage on the UK-based biopharmaceutical company, putting a gargantuan price target of $130 on it, which represents upside of nearly 50%. The company uses cannabinoids as treatments of conditions such as multiple sclerosis spasticity and cancer pain and hence offers a unique play in the healthcare space. Samuel Isaly’s health care-focused fund Orbimed Advisors is another firm that is bullish on GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), as it holds 377,100 shares of the company.

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