Hedging your health

July 27, 2015 09:00 AM

U.S. equities have tripled during the past six years, leading to concerns about potential overvaluation and how the market will continue to perform. Utilizing Securities and Exchange Commission (SEC) disclosures to monitor the trends of leading hedge funds provides insight on how they are handling the current valuation.

More than 60% of activist managers have reduced their exposure to the U.S. equity markets over the past 12 months, based on data in the most recent 13F quarterly filings of activist managers tracked by WhaleWisdom.com. It appears that these managers are taking a cautious approach to the U.S. equities markets.  

The pullback from equities by hedge funds has been modest and measured—not a full retreat. An example is Southeastern Asset Management, which reduced its exposure to U.S. markets by $2.5 billion during 12 months ending in March 2015, roughly 14% of its portfolio. Other managers backing off of U.S. equities include Appaloosa and Blue Ridge Capital.  

Managers that specialize in healthcare companies are the one group that is continuing to increase their investments and exposure to the U.S. market. Investors looking to profit from the explosion in the healthcare industry during the past six years would have been wise to follow the lead of BB Biotech and Orbimed Advisors. An investor using the data in the quarterly 13F filings to replicate these managers’ investments could have reaped an annualized return of 46% following BB Biotech and 32.5% with Orbimed, compared to 19.9% for the S&P 500 since early 2009. That’s based on a portfolio of each hedge fund’s top 20 holdings, equally weighted and rebalanced after every quarter. 

With more than $15 billion invested worldwide, Orbimed is the world’s largest investment firm dedicated to healthcare. Its most recent 13D disclosure (see “Top 13D/G Transaction in 2015”) was its investment of about $450 million in Ascendis Pharmaceuticals.  Ascendis is based in Denmark and specializes in producing improved versions of existing drugs. Will Ascendis be the next big success story for a firm that has been an early investor in healthcare companies such as Amgen, Biogen and Celgene?

In case you are new to 13F filings: 13Fs are disclosures that the SEC requires from any manager that exercises investment discretion more than $100 million or more in marketable securities. The filings are required within 45 days of the end of each quarter and reflect the ownership interests that investment managers have in companies traded on U.S. exchanges. They’re publicly available, and the data in them can be enormously helpful in giving everyday investors insight into the decisions of the leading hedge fund managers. Have you ever wanted to take a look at a hedge fund manager’s portfolios and invest along-side him? It’s probably easier than 
you realize with 13Fs.

About the Author

Brent Plunkett is the co-owner of WhaleWisdom.com and CEO of Charter Wealth Management.  WhaleWisdom helps investors research and replicate the portfolios of top hedge funds through their publicly available SEC disclosures providing access and tools to invest like a Wall Street money manager at a Main Street price. 
@whalewisdom