Alger, an investment management firm, published its “Alger Small Cap Focus Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. During the third quarter, the largest portfolio sector weightings were Health Care and Information Technology. The largest sector overweight was Health Care. The portfolio had no exposure to the Financials, Materials, Real Estate, or Utilities sectors. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Alger, in its Q3 2021 investor letter, mentioned Nevro Corp. (NYSE: NVRO) and discussed its stance on the firm. Nevro Corp. is a Redwood City, California-based medical device company with a $4.2 billion market capitalization. NVRO delivered a -29.93% return since the beginning of the year, while its 12-month returns are down by -25.08%. The stock closed at $121.29 per share on October 22, 2021.
Here is what Alger has to say about Nevro Corp. in its Q3 2021 investor letter:
“Nevro Corp. was among the top detractors from performance. Nevro has developed and commercialized a proprietary high frequency spinal cord stimulation (SCS) system. More broadly, this technology is known as neuromeodulation, which involves treating pain with electrical stimulation. Today, Nevro’s technology is primarily used to treat chronic lower back and leg pain. However, the company received FDA approval to use its system for the treatment of chronic pain associated with painful diabetic neuropathy (PDN) in July, which represents a potentially significant market opportunity. We believe Nevro’s underperformance resulted from the company producing weaker-than-expected results for the three-month period ended June 30 and, more importantly, issuance of guidance for the third quarter that was well below investor expectations. The company also withdrew full-year revenue guidance due to limited visibility regarding COVID-19 related recovery trends and timelines. For the third quarter guidance, Nevro attributed its disappointing outlook to the impact of the pandemic and a slow recovery in procedure volumes as patients appear to be holding off on physician office visits and surgeries. However, investors have also been concerned that Nevro may be losing share to competitors and that SCS market growth has moderated. We have sold the position.”
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Based on our calculations, Nevro Corp. (NYSE: NVRO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. NVRO was in 26 hedge fund portfolios at the end of the first half of 2021, compared to 29 funds in the previous quarter. Nevro Corp. (NYSE: NVRO) delivered a -21.28% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
