The healthcare sector has been one of the U.S. economy’s strongest during the recovery from the Great Recession. Shares of healthcare companies have outperformed the overall market, with an annualized return of nearly 20% during the last five years, compared with about 14% for the S&P 500.
Hedge funds, in particular, have gotten in on the action. Healthcare shares represented about 23% of WhaleWisdom’s proprietary WhaleIndex of hedge-fund holdings, as of Oct. 31, compared to just 14% of the S&P 500. Within this subset, WhaleWisdom has identified six hedge-fund managers, which have $31 billion of their $32 billion value in healthcare companies, as particularly worth following (see “The big six”). Their performance has far exceeded even that of the overall healthcare market, with an average annualized returns of 31%, compared with 20% of the healthcare sector for the five-year period ending in October.
These six hedge funds tend to take large positions in their portfolio companies—so large that they’re often entitled to board representation. These large positions also require them to file 13D and 13G disclosures with the SEC—about 50 of them in just the last 10 months (see “Size players”). Moderately sophisticated individual investors can learn a lot from those disclosures and can even build information into their own portfolios.