The Stock Picks of This Obscure Hedge Fund Returned 70.5% In 2015; See What It’s Betting On in 2016

Although Los Angeles-based, biotech-focused hedge fund DAFNA Capital Management has been in operation for the past 17 years, chances are that very few people have heard its name. However, this obscure fund managed to achieve in 2015 what several other hedge fund industry titans couldn’t: it delivered high double-digit returns to its investors in a flat market. The fund was started n January 1999 by Nathan Fischel, an M.D., along with his wife Fariba Ghodsian, who holds a Ph.D. in Biomedical Engineering from Oxford University. Research done by Insider Monkey on DAFNA Capital Management’s 13F holdings estimated the returns of its long stock picks in companies worth at least $1 billion, which revealed that the fund’s qualifying holdings delivered a weighted average return of 70.5% in 2015, based on the size of those positions at the beginning of each quarter. That performance ranked it as the top performing fund in our database, using that metric, narrowly beating another biotech-focused fund, the esteemed Baker Bros. Advisors. As DAFNA Capital recently disclosed its equity holdings via a 13F filing with the SEC, we will take a closer look at the fund’s top stock picks going into 2016.

At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

#4 Marinus Pharmaceuticals Inc (NASDAQ:MRNS)

– Shares Owned by DAFNA Capital Management (as of December 31): 566,498

– Value of Holding (as of December 31): $4.33 million

DAFNA Capital Management increased its holding in Marinus Pharmaceuticals Inc (NASDAQ:MRNS) by 2,439% during the fourth quarter. After falling by over 60% between August and October of last year, shares of Marinus Pharmaceuticals Inc (NASDAQ:MRNS) have been unable to rebound so far in 2016 and currently trade down by nearly 46.8% year-to-date. In November, the company issued 5 million additional shares through a secondary offering at $6 per share to fund its Phase 3 trial in focal epilepsy and other indications. Though Marinus Pharmaceuticals’ stock is down by almost 50% from its IPO price of $8 per share, based on recent developments and the company’s drug pipeline, analysts think that it is undervalued at current levels. On February 2, analysts at Oppenheimer reiterated their ‘Outperform’ rating and $17 price target on the stock.

#3 AbbVie Inc (NYSE:ABBV)

– Shares Owned by DAFNA Capital Management (as of December 31): 116,581

– Value of Holding (as of December 31): $6.91 million

Despite an almost 9% rise in its stock and DAFNA Capital Management keeping its holding in it unchanged, AbbVie Inc (NYSE:ABBV) fell a spot to become the fund’s third-largest equity holding at the end of December. Shares of AbbVie Inc (NYSE:ABBV) are down by nearly 8% this year, dragged down by a pullback in the overall equity market and concerns about increasing competition from biosimilar versions of its bestselling drugs. Though the company’s CEO, Richard Gonzalez, has stated several times that AbbVie will vigorously defend the intellectual property rights of its bestselling drugs, investors are still not sure if the company will be able to stop competition from taking some of its market share. On February 10, AbbVie informed its shareholders that a second Phase 3 clinical trial conducted to assess its drug Elagolix in postmenopausal women with pain caused by endometriosis had successfully met its co-primary endpoints. At its current stock price, the $0.57 per share quarterly dividend paid by AbbVie translates into an attractive dividend yield of over 4%. Neil Woodford‘s Woodford Investment Management increased its stake in the company by 67% to nearly 8.8 million shares during the fourth quarter.

#2 NxStage Medical, Inc. (NASDAQ:NXTM)

– Shares Owned by DAFNA Capital Management (as of December 31): 366,554

– Value of Holding (as of December 31): $8.03 million

The 39% rise in NxStage Medical, Inc. (NASDAQ:NXTM)’s stock during the fourth quarter propelled it to the second spot in DAFNA Capital Management’s equity portfolio by the end of December, during which time the fund didn’t make any changes to its stake in the company. However, this year the stock has given up all of those gains it accumulated during the fourth quarter and is trading down by 32% year-to-date. Most of those declines have come after the company reported its fourth quarter financial results, despite the revenue of $89.80 million that NxStage Medical, Inc. (NASDAQ:NXTM) reported for the quarter coming in above analysts’ consensus estimate of $86.83 million, while its loss of $0.04 per share was in-line with expectations. For the first quarter, the company guided revenue to be in the range of $87 million-to-$89 million, while anticipating a net loss of $2 million-to-$4 million range. On February 23, analysts at Piper Jaffray reiterated their ‘Overweight’ rating on the stock, while reducing their price target on it to $23 from $24. James E. Flynn‘s Deerfield Management reduced its holding in the company by 28% to nearly 4.59 million shares during the October-to-December period.

#1 AtriCure Inc. (NASDAQ:ATRC)

– Shares Owned by DAFNA Capital Management (as of December 31): 487,946

– Value of Holding (as of December 31): $10.95 million

With DAFNA Capital Management’s stake in AtriCure Inc. (NASDAQ:ATRC) remaining unchanged during the fourth quarter, the position held on to the top spot in the fund’s portfolio going into 2016. Though the company recently gave good news to its shareholders by announcing that the Japanese Ministry of Health, Labour and Welfare has approved its AtriClip products, its shares failed to take off and currently trade down by 26.16% year-to-date. On February 25, AtriCure Inc. (NASDAQ:ATRC) reported a loss of $0.36 per share on revenue of $35.90 million. For the same quarter of the previous financial year, it reported a loss of $0.20 per share on revenue of $29.40 million. Despite the heavy decline in the stock, AtriCure Inc.  currently sports a ‘Buy’ rating from seven of the eight prominent analysts who cover it, with them having an average price target of $25.75 on it, which signifies upside potential of over 50%. Efrem Kamen‘s Pura Vida Investments was one of the hedge funds that initiated a stake in the company during the fourth quarter; it held 48,450 shares of AtriCure as of December 31.

Disclosure: None