Rock Springs Capital Management, managed by Kris Jenner, Gordon Bussard, and Graham McPhail, a healthcare-focused fund based in Baltimore, Maryland rode its top biotech picks to big returns in the first quarter. The 65 long positions Rock Springs reported holding as of the end of 2014 in companies with a market cap of greater than $1 billion had weighted average returns of 11.8% during the first quarter of the year. That follows a 2014 in which Rock Springs scored big on a number of its top picks, including InterMune Inc (NASDAQ:ITMN), which had a monumental 2014, gaining nearly 400% on the year leading up to and following its sale to Roche Holding Ltd. (ADR) (OTCMKTS:RHHBY).
We are very interested in the 13F filings of funds like Rock Springs, as we use them to determine the top 15 small-cap stocks held collectively by the funds we track. We gather and share this information based on research over a 16-year period, from 1999 to the present, the results of which have shown that these 15 most popular small-cap picks have great potential to outperform the market, as they beat the S&P 500 Total Return Index by nearly one percentage point per month in backtests between 1999 and 2012. Moreover, since the beginning of forward testing at the end of August, 2012, the strategy worked splendidly, outperforming the market every year and returning 132% through March 11, which is 79 percentage points higher than the returns of the S&P 500 ETF (SPY), outperforming the market by an average of more than 2.5 percentage points per month (see more details).
Rock Springs’ Medtronic PLC (NYSE:MDT) position overtook its Gilead Sciences, Inc. (NASDAQ:GILD) holding (which was lowered by 30% during the fourth quarter) for top spot in the fund’s portfolio. Rock Springs’ 550,000 share position was valued at $39.71 million at the end of 2014. Medtronic PLC (NYSE:MDT) posted solid returns of 8.44% during the first quarter. It was just revealed that Medtronic will be one of a number of companies to build health-related apps for the newly-released Apple Watch, which will make it easier for doctors and insurance companies to access a range of medical information collected by the Watch. Billionaires Israel Englander, Ken Griffin, and Daniel S. Och all have large positions in Medtronic PLC (NYSE:MDT).
Rock Springs maintains a large position in AbbVie Inc. (NYSE:ABBV), which has been one of its top picks dating back to 2013, and the fund had position of 580,000 shares at the end of 2014, valued at $37.96 million. AbbVie endured an up-and-down first quarter, with several peaks and valleys in share prices, but suffered disappointing returns of -9.87% when all was said and done. Despite its inability to complete its purchase of Shire PLC (ADR) (NASDAQ:SHPG) last year, AbbVie Inc. (NYSE:ABBV) remains an intriguing biotech stock with good growth potential and a solid dividend yield of 3.31%. Fund ownership of AbbVie Inc. (NYSE:ABBV) tumbled to 61 at the end of 2014 from 81 a quarter prior, owing to its Shire deal falling through, but other healthcare-focused funds like Samuel Isaly’s Orbimed Advisors remain believers in AbbVie.
Rock Springs has also had a long-time holding in McKesson Corporation (NYSE:MCK). The fund held a 139,750 share position at the end of 2014, valued at $29.01 million, its fifth-largest. McKesson Corporation (NYSE:MCK) was tabbed as a potential mover with high upside six months ago, when it was trading at just under $196. Shares are trading today at $226, and gained 9.09% during the first quarter. Billionaires Daniel S. Och and Larry Robbins had notable positions in McKesson Corporation (NYSE:MCK) at the end of 2014.
Thoratec Corporation (NASDAQ:THOR) had a big quarter, its shares getting a boost of 29.05%. Since a dismal earnings report on August 6, 2014 that sent shares plummeting the next trading day, Thoratec Corporation (NASDAQ:THOR) has rebounded big-time, posting gains of 84.56% over the past eight months, which has included two big earnings beats in a row. While sales of the company’s flagship HeartMate product line have flattened out, it scored double-digit revenue growth from its CentriMag line of blood pumps. Israel Englander had the largest position in Thoratec Corporation (NASDAQ:THOR) among funds in our database, with it standing at 1.91 million shares, and having been increased by 63% during the fourth quarter.
Another interesting and valuable pick of Rock Springs is Humana Inc (NYSE:HUM). We pegged Humana as the top potential takeover target six weeks ago, with the caveat that its soaring valuation made that prospect less and less likely by the day. The same is truer than ever today, as Humana Inc (NYSE:HUM) has added another $2.3 billion to its market cap since then, thanks in part to gains of over 24% during the first quarter. While Humana was slightly lower in Rock Springs’ portfolio at 19th, its position of 96,250 shares valued at $13.82 million was still 1.61% of the portfolio’s value, making its gains very worthwhile. Billionaires Larry Robbins and Stephen Mandel have much larger positions in Humana Inc (NYSE:HUM), though each carries slightly less exposure to the stock due to their enormous portfolios.
Disclosure: None
