Stockholm (HedgeNordic) – Rhenman Healthcare Equity L/S tops this year’s list of the best-performing Nordic hedge funds, after returning 25.8% net-of-fees since the start of the year through the end of August.
The healthcare-focused long-short equity fund also outpaced the average global healthcare hedge fund by a significant margin in 2017, as the hedge funds that make up the HFRI EH: Healthcare Index returned 13.0% year-to-date through the end of August. The fund’s main share-class, IC1 (EUR), returned 4.3% in August, a gain mainly attributable to long positions in biopharmaceutical company Intra-Cellular Therapies, specialty pharmaceutical company Horizon Pharmaceuticals, and development stage company focusing on chronic neurological diseases, Adamas Pharmaceuticals. The biggest detractors from Rhenman Healthcare Equity’s portfolio return in August were British drugmaker Shire; Allergan, a drugmaker known for its best-seller Botox; and American medical technology company Endologix.
The Stockholm-based hedge fund, which oversees EUR 481 million in assets as of the end of August, has delivered an annualized return of 21% since its inception in June 2009. The fund has been so successful in part because of the support of a scientific advisory board, which plays a pivotal role in the fund’s investment process. “We make money, sooner or later, on most of the recommendations from the Scientific Advisory Board,” Henrik Rhenman, chief investment officer at Rhenman & Partners Asset Management AB, told Bloomberg in March 2017. The portfolio managers of the healthcare fund collaborate with an advisory board of five medical experts to gain in-depth knowledge of the scientific basics within medicine, clinical trials, products, companies and market trends.
Rhenman Healthcare Equity’s practice of teaming up with medical experts to improve the stock-picking investment process is quite unique, but other renowned healthcare hedge funds have also made use of similar groups of experts to gain a competitive advantage over peers. For instance, RA Capital Management, a U.S.-based hedge fund founded by Peter Kolchinsky, runs a research division, called TechAtlas, that functions as an internal think tank. The TechAtlas division consists of a scientifically trained team that seeks to map out competitive landscapes in an attempt to identify breakthroughs and originate conviction in new ideas.
In a fresh monthly letter to investors, the team behind Rhenman Healthcare Equity wrote that the weakening of the U.S. dollar “has been tough for the fund” due to the fund’s emphasis on the U.S. healthcare market, but the team believes “US-based export companies have good opportunities to surprise positively as a result of the weaker USD.” The fund’s equity allocation is usually two-thirds in the United States and one-third in the rest of the world, mainly because the U.S. is a dominant player within healthcare. The healthcare sector has historically proved to be an attractive universe for active stock selection strategies, and the Nordic healthcare-focused fund serves as evidence for the claim.