In this article, we discuss 10 healthcare focused hedge funds and 10 top stock picks. You can skip our detailed analysis of the performance of healthcare focused hedge funds and go directly to read 10 Healthcare Focused Hedge Funds and 5 Top Stock Picks.
Hedge funds resort to defensive stocks when faced with economic growth uncertainty and heightened stock market volatility. Healthcare has always been a stabilizing industry that weathers economic storms and helps portfolio managers stabilize portfolios in market peril. The fact that consumer demand for healthcare products and services will always be high in calm and chaotic economic cycles affirms why it is one of the most critical investment sectors.
Healthcare takes the defence concept a step further as many healthcare companies make it up. Right from companies that offer patient care to those that engage in the research and development of novel treatments to those that design, manufacture, and commercialize equipment's diagnostics and tests used in the sector.
Orbimed Advisors is a healthcare-focused hedge fund that primarily invests in pharmaceutical and medical device companies as opposed to hospitals and insurance products, as is the case with others. With a portfolio worth $5.5 billion, the hedge fund runs a well-balanced portfolio made up of large healthcare companies and small-cap companies.
While diversification is an essential aspect of investing in the healthcare industry, $4.6 billion Deerfield Management is one of the hedge funds mostly tracked. The hedge fund specializes in funding R&D managing hostile takeovers and corporate transitions. It offers an opportunity to diversify holding beyond average healthcare plays.
While the overall stock market has been on an impressive run, with the S&P 500 rallying by about 12% year to date and the Nasdaq 100 up by about 36%, the same cannot be said about the healthcare sector. The S&P 500 Healthcare index, which tracks the performance of the 500 healthcare companies, is down by about 6% for the year.
Stock fund flows into the healthcare sector have swung wildly for the better part of the year as hedge funds, and investors try to adjust their portfolios per the prevailing economic situation. The underperformance in the healthcare sector has come on the US economy heating up to what the Atlanta Federal Reserve estimates as a booming expansion depicted by a 5.9% expansion in the third quarter.
A robust US economy often forces investors and hedge funds to pursue investment in other sectors. Technology stocks have always been the preferred option in times of strong economic growth and solid underlying macroeconomics. However, heading into yearend, uncertainties are increasingly cropping up, with the US Federal Reserve likely to keep interest rates higher for longer.
A high-interest rate environment poses the biggest threat to a US economy that was growing at an impressive rate amid expectations that the FED will start cutting interest rates at yearend. However, with inflation levels unlikely to drop below the recommended 2% threshold, the FED will likely stick with the high interest rates.
The prospect of the economy cooling off amid the high interest rates is high as businesses and companies struggle to access cheap capital to accelerate economic activity. Economists have already warned of the prospect of the economy plunging into recession amid the high-interest rates environment.
Likewise, the focus should always be on long-term plays as one of the ways of shrugging off the uncertainties triggered by the high-interest rate environment. Magnetar Capital is one healthcare-focused hedge fund that has perfected the art of long-term investment by sustainably harnessing alphas. Heavily invested in the healthcare sector, the hedge fund pursues market inefficiencies while staying focused on opportunities as the one presented in the healthcare sector after the recent pullback.
Farallon Capital is one of the top healthcare-focused hedge funds, as it invests nearly a third of its portfolio in healthcare plays as part of its defensive strategy, with a portfolio of about $17.9 billion. It boasts of the likes of Iqvia Holdings, Thermo Fisher Scientific and AstraZeneca in its portfolio.
RA Capital Management, with a portfolio value of about $5.3 billion, is one healthcare-focused hedge fund positioned for any eventuality in the equity markets as it invests in companies with promising drugs and technologies. The hedge fund boasts on its portfolio the likes of Asendis Pharma and Legend Biotech Corporation.
Two Sigma Advisors, with a portfolio size of $39.2 billion, is also heavily invested in the healthcare sector as part of its quantitative analysis strategy. The quant hedge fund boasts the likes of Gilead Sciences Elevance Health and Regeneron Pharmaceuticals in its portfolio.
Escalating geopolitical tensions is another headwind likely to take a toll on investment sentiments in the equity markets. Tensions in the Middle East and Europe are already forcing hedge funds to tweak their portfolios with an increased focus on defensive plays like healthcare stocks.
"If you continue to see money flowing into healthcare then investors are using their feet to march to a more conservative posture given the uncertain outlook for where the economy goes from here," said Bob Kalman, senior portfolio manager at Miramar Capital.
10 Healthcare Focused Hedge Funds and 10 Top Stock Picks
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Healthcare-focused hedge funds remain bullish on healthcare stocks, believing that the Federal Reserve interest rate hikes will eventually start to weigh on the economy. As jitters send shockwaves in the equity markets, investors and hedge funds are likely to be highly cautious and expected to turn their attention to defensive plays.
Glenview Capital, founded by legendary investor Larry Robins in 2001, is one hedge fund poised to navigate any turmoil in the equity market. It is one of the top healthcare-focused hedge funds, with a third of its portfolio on healthcare plays, including Universal Health Services and Tenet Healthcare. At the height of the 2009 financial crisis, the hedge fund returned 82.7% as most equities imploded.
HealthCor Management is a healthcare-focused hedge fund that has made a name for its non-impressive stock-picking plays. The hedge fund returned 4% in 2008 as the S&P 500 fell 19% as the financial crisis escalated. It is one of the most followed hedge funds as it invests two-thirds of its portfolio in the healthcare industry while diversifying the portfolio in different stocks.
Palo Alto Investors is another healthcare-focused hedge fund worth tracking for gaining insight into the direction the market is moving. The hedge fund mainly specializes in small-cap stocks in the healthcare sector. Its $1.2 billion portfolio comprises the likes of United Therapeutics, Amicus Therapeutics and Insmed Incorporated.
Lone Pine Capital, with a portfolio value of $10.91 billion, invests in public and private growth equity, including pursuing opportunities in the healthcare sector. It boasts of UnitedHealth Group and Moderna holdings as part of its investment strategy.
10 Healthcare Focused Hedge Funds and Top Stock Picks
Our Methodology
Using Insider Monkey’s data from the second quarter of 2023, we ranked the stocks by how many hedge funds owned them.
Headquartered in New York, Pfizer Inc. (NYSE:PFE) discovers, develops, manufactures and markets biopharmaceutical products. It offers medicines and vaccines for various therapeutic areas, including cardiovascular, metabolic, migraine, and women's health.
While Pfizer Inc. (NYSE:PFE) is down by about 25% for the year, it is one of the top stock picks for healthcare-focused hedge funds. As the second quarter of this year concluded, 73 out of the 910 hedge funds in Insider Monkey's database had acquired shares of Pfizer Inc. (NYSE:PFE). In Q3 2023, the noteworthy participant is Diamond Hill Capital, led by Ric Dillon, holding 6.60 million shares valued at $219.05 million.
AbbVie Inc. (NYSE:ABBV) discovers, develops, manufactures, and sells pharmaceuticals worldwide. Its lead product is Humira, an injection for autoimmune intestinal Behcet's diseases and pyoderma gangrenosum. It also offers Skyrizi for severe plaque psoriasis and Crohn's disease. The company also provides facial injectable plastics and regenerative medicine.
AbbVie Inc. (NYSE:ABBV) is one of the top stocks for healthcare-focused hedge funds, going by the 100% gain over the past three years. By the conclusion of June 2023, 74 hedge funds, as monitored by Insider Monkey, disclosed their holdings in AbbVie Inc. (NYSE:ABBV), which is a decrease from the 75 funds in the prior quarter. The total value of these stakes exceeds $2.3 billion. Diamond Hill Capital, under the leadership of Ric Dillon, emerged as the notable holder of the company, with ownership of 1.32 million shares valued at $196.06 million.
Tenet Healthcare Corporation (NYSE:THC) is a healthcare company with three segments: hospitals, ambulatory care, and conifer. It operates hospitals offering acute care, operating and recovery rooms, and respiratory therapy services. It also provides intensive and critical care.
Tenet Healthcare Corporation (NYSE:THC) remains one of the top stock picks for healthcare-focused hedge funds, as the stock is up by 12% for the year. It is one of the defensive plays for shrugging off any turmoil in the overall market on deteriorating macroeconomics.
At the close of Q2 2023, 74 out of the 910 hedge funds included in Insider Monkey's research had allocated investments to Tenet Healthcare Corporation (NYSE:THC). In Q2 2023, Glenview Capital, managed by Larry Robbins, is the biggest shareholder of the company, with a holding of 6.4 million shares valued at $526 million.
The Cigna Group (NYSE:CI) provides insurance and related products and services in the United States. It offers various coordinated and point solution health services, including pharmacy benefits, home delivery pharmacy, speciality pharmacy distribution and care delivery. Its healthcare segment offers medical pharmacy, behavioural health, dental, and other products and services.
During the third quarter, Lee Munder Capital Group held a prominent stake in The Cigna Group (NYSE:CI), with a portfolio of 19,747 shares valued at $5.65 million. In the second quarter of 2023, a total of 74 hedge funds had invested in The Cigna Group (NYSE:CI), amassing a combined stake worth $4.07 billion.
Merck & Co., Inc. (NYSE:MRK) is a healthcare company that offers human health pharmaceutical products in oncology, hospital acute care, immunology, and diabetes. Its animal health segment makes and sells drugs, vaccines, and services for animals.
Merck & Co., Inc. (NYSE:MRK) is up by more than 60% over the past three years, cementing its status as a top stock pick for healthcare-focused hedge funds. By June 2023, 78 of the 910 hedge funds featured in Insider Monkey's database had acquired and held shares of Merck & Co., Inc. (NYSE:MRK). Notably, Ian Simm's Impax Asset Management emerged as the company's significant shareholder, holding shares valued at $80.41 million.
