Tamarack Capital Management’s Ariad Pharmaceuticals, Inc. (ARIA) Holding Carries It To Strong Q3 Gains

Our data culled from the 659 funds in our database which filed 13Fs for the June quarter, and whose portfolios contained at least 5 long positions in companies valued at $1 billion, revealed some startling statistics. Foremost was the fact that an impressive 95% of them delivered positive stock returns with those long positions during the third quarter based on our methodology. In comparison, S&P 500 ETFs returned just 3.3% during the quarter, so that high a percentage of funds posting gains is a noteworthy feat. However, what we don’t see in 13F filings are hedge funds’ holdings that don’t necessarily do as well: the short-side of their portfolios, as well as their low-yield debt positions. Couple that with demanding fees, and you can see why hedge funds consistently underperform the market net of fees, despite being quality stock pickers. That’s why at Insider Monkey, we analyze only the top stock picks of the top hedge funds, to cut through the fees and underperformance. In this article, we’ll take a look at the performance of Justin John Ferayorni‘s Tamarack Capital Management and four of its favorite stocks.

Tamarack Capital’s equity portfolio was valued at $317.91 million on June 30 and consisted of 16 long positions in companies with a market cap of at least $1 billion. Based on the size of those holdings on June 30, those 16 positions delivered weighted average returns of 14% during the third quarter, pushing its year-to-date performance using the same metric to 10.1% gains. It should be noted that our calculations may be different from the fund’s actual returns, as they do not factor in changes to positions during the quarter, or positions that don’t get reported on Form 13Fs, like short positions.

In this article, we’ll take a look at four of the favorite stock picks of Tamarack Capital and see how they performed during the third quarter. As the fund has also now filed its 13F for the September 30 reporting period, we’ll also take a look at how it traded those stocks during the quarter.

First up is NxStage Medical, Inc. (NASDAQ:NXTM), which Tamarack owned 1.2 million shares of at the end of June, valued at $26.01 million. The fund the size of its position in the stock by 29% during the second quarter, taking some profit from the position as shares soared. However, they weren’t done gaining, posting gains of 15.3% during the third quarter, during which time Tamarack trimmed its position by a further 10%, leaving it with 1.08 million shares.

At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in NxStage, a 23% increase quarter-over-quarter. James E. Flynn’s Deerfield Management has the biggest position in NxStage Medical, Inc. (NASDAQ:NXTM), worth close to $97.7 million, comprising 3.8% of its total 13F portfolio. Coming in second is Sectoral Asset Management, led by Jerome Pfund and Michael Sjostrom, holding a $39.6 million position. Other professional money managers with similar optimism include Israel Englander’s Millennium Management and Joseph Edelman’s Perceptive Advisors.

Next up is Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), in which Tamarack upped its stake by 31% during the second quarter, to 2.1 million shares valued at $15.52 million. Shares of the company returned a stunning 85.3% during the third quarter, which prompted Tamarack to trim its position by 11% to 1.85 million shares. Shares have endured a rough fourth quarter, but are having a great day today, rising by 16%.

Is Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) a great stock to buy now? Money managers believe so, as net ownership of the stock headed up by one to 27. Those funds owned 23.10% of the stock on June 30. Among them, Sarissa Capital Management held the most valuable stake in Ariad Pharmaceuticals, which was worth $95 million at the end of the second quarter. On the second spot was Consonance Capital Management, which amassed $65.4 million worth of shares. Moreover, Camber Capital Management, Point State Capital, and Palo Alto Investors were also bullish on Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA).

We’ll check out two more of the fund’s stock picks on the next page.

Let’s take a gander now at how Tamarack traded Quest Diagnostics Inc (NYSE:DGX) in recent quarters and how the position performed for the fund. The fund’s second-most valuable holding on March 31, Tamarack slashed its position in the stock by 49% during the second quarter, to 183,457 shares with a value of $14.93 million. As the stock was returning 5% during the third quarter, the fund sold out of nearly all of its remaining position, offloading 95% of its holding, leaving it with just 8,557 shares.

Other smart money managers were also reducing their bets on the stock in the second quarter, as the number of bullish hedge fund positions was trimmed by 4 to 25 as of June 30. The largest stake in Quest Diagnostics Inc (NYSE:DGX) on June 30 among those 25 funds was held by AQR Capital Management, which reported holding $126.3 million worth of stock. It was followed by Healthcor Management LP with a $93.6 million position. Other investors bullish on the company included Marshall Wace LLP, Ariel Investments, and Citadel Investment Group.

Lastly, let’s take a peek at the key hedge fund action regarding Medtronic, Inc. (NYSE:MDT). Tamarack also cut its position in this health stock during the second quarter, by 32% to 169,000 shares valued at $14.66 million. Shares were flat during the third quarter, during which time the fund sold off another 31% of its position, leaving it with 115,000 shares.

At Q2’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 6% increase quarter-over-quarter, ranking it as one of the more popular healthcare stocks. When looking at the institutional investors followed by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the largest position in Medtronic, Inc. (NYSE:MDT), worth close to $214.3 million. The second most bullish fund manager is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $153.7 million position. Some other members of the smart money that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Jean-Marie Eveillard’s First Eagle Investment Management.

Disclosure: None