Paul Sinclair‘s newly established healthcare-focused fund, Blue Jay Capital Management posted an impressive 12% return during the first quarter, significantly outperforming the S&P 500 ETF (SPY) that rose by a mere 0.9% during the same period. The above metric for Blue Jay is based on the weighted average returns of all 23 holdings in the fund’s equity portfolio, based on their size at the beginning of the quarter, and may be different than the fund’s actual returns. Major components of that equity portfolio are Receptos Inc (NASDAQ:RCPT), Cooper Companies Inc (NYSE:COO), Centene Corp (NYSE:CNC), Biogen Inc (NASDAQ:BIIB) and Mallinckrodt PLC (NYSE:MNK).
Paul Sinclair, with a MBA from Stanford Graduate School of Business, started his career at the investment bank Donaldson Luftkin & Jenrette. Later he moved to Merrill Lynch’s healthcare investment banking group before moving on to the hedge fund Vantis Capital Management in 2004, where he was in charge of the health science fund. After the firm closed in 2006, Sinclair set up his own shop, a health care equities fund called Expo Capital Management (by his fund’s names, Sinclair appears to be a fan of Canada’s baseball teams). The fund’s annual returns from 2007 through 2010 were 20%, 2.5%, 26% and 13%. The first slump came in 2011 as the fund lost some 8.7%. When the going got tougher and it fell another 6% by May of 2012, Sinclair thought it wise to liquidate his $458 million firm. This was the time of turbulent markets owing to Europe’s sovereign debt crisis and even strong company fundamentals couldn’t always save stock pickers. Following President Obama’s healthcare policies and the consequent surge in the healthcare sector, Sinclair thought it was an opportunity too good to pass up on. He decided to test the investment waters once again and fired up Blue Jay Capital’s engines in the fourth quarter of 2014. The market value of Blue Jay’s portfolio by the end of its debut quarter stood at $224.27 million.
We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our back tests to be on the safe side. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
Coming back to Blue Jay, the new fund held some 100,000 shares of Receptos Inc (NASDAQ:RCPT) valued at $12.25 million at the end of 2014. The holding represented 5.46% of the fund’s equity portfolio. The $4.8 billion biopharmaceutical company posted strong results in the first quarter as it appreciated by nearly 35%. Recently, there has also been chatter that the company might soon be acquired by a bigger one, as it is looking for a partner to help further the development of its promising treatment for multiple sclerosis. Receptos Inc (NASDAQ:RCPT)’s drug, called ozanimod, delivered promising mid-stage trial results and the company recently announced that it has completed enrollment for the drug’s phase 3 trial. Another prominent stockholder of the company is Phil Gross and Robert Atchinson‘s Adage Capital Management.
Cooper Companies Inc (NYSE:COO) was another one of Sinclair’s holdings that ticked the return’s needle in the right direction as the company’s stock rose by 15.65% over the first quarter. The fund held some 75,000 shares valued at $12.16 million of the medical devices company. The company operates through two segments, CooperSurgical, which provides solutions relating to women’s healthcare, and CooperVision, focused on vision care. The latter segment recently reported that the demand of its newly launched clariti 1 day silicone hydrogel contact lenses has exceeded the company’s expectations. Stephen Mandel‘s Lone Pine Capital initiated a significant stake in the company during the fourth quarter, containing some 1.75 million shares valued at $283.70 million.
Centene Corp (NYSE:CNC) was the highest gainer in this list as it climbed up by about 36.15% during the first quarter. Blue Jay’s stake in the company amounted to 230,000 shares valued at $11.94 million. The provider of Medicare coverage could be another acquisition target according to an article on Bloomberg, which claims that the increasing enrollment of Americans under Obamacare has made these smaller medicare companies very attractive for the big boys in the insurance industry who do not have enough Medicare and Medicaid exposure. Louis Navellier‘s Navellier Associates massively increased its exposure in Centene Corp (NYSE:CNC) during the fourth quarter to about 368,000 shares valued at $38.22 million.
Biogen Inc (NASDAQ:BIIB) also posted double-digit gains during Q1 as it rose by 24.39%. The stake marks Blue Jay’s bet on two opposing sides in the $17 billion multiple sclerosis market. While Receptos Inc (NASDAQ:RCPT)’s drug is still in the developmental phase, which many expect will remain the case until 2017, Biogen’s Avonex is currently a market leader and added about $3.01 billion to the company’s top line last year. Biogen Inc (NASDAQ:BIIB) is also one of the top picks of Samuel Isaly’s Orbimed Advisors, according to the latest 13F filing.
Mallinckrodt PLC (NYSE:MNK) also posted a strong performance over the quarter as it appreciated by 27.89%. Blue Jay’s stake in the $14.73 billion pharmaceutical company amounted to 100,000 shares valued at $9.90 million. The company recently entered into a definitive agreement to buy Ikaria for about $2.3 billion. Jonathan Savitz‘s Greywolf Capital Management was the largest shareholder in Mallinckrodt PLC (NYSE:MNK) among the funds that we track.
Disclosure: None
