By Alex Gavrish, Etalon Investment Research; author of "Wall Street Back To Basics"
Hedge funds ranking
Larry Robbins, manager of Glenview Capital Management, topped the list of best-performing hedge funds in 2013. The significant outperformance that his funds achieved in 2013 is due to a large bet on healthcare stocks. It is expected that after the Affordable Care Act is fully implemented, healthcare companies will reap the benefits as more people with medical insurance will receive services. The healthcare sector outperformed the S&P 500 Index in 2013 as well as over the last 2 year period by a large margin: iShares U.S. Healthcare Providers ETF and iShares U.S. Medical Devices ETF returned 35.7% and 33.7% respectively, in 2013, compared to an S&P 500 return of 25%. Over a 2 year period 2012-2013, these sector ETFs returned 52.8% and 55.5% respectively, while S&P 500 had risen 43.2% over the same period. After such recent returns, one wonders if there is still value left in healthcare related stocks and if it is not too late yet to jump about Obamacare train?
Glenview portfolio holdings
Lets take a closer look at Glenview Capital Management portfolio holdings in the healthcare sector. According to the latest quarterly holdings filling of Glenview Capital Management, the firm had approximately 40% of the portfolio in healthcare related companies. These 40% in turn, were spread across four main subsectors: hospitals, medical devices, healthcare insurance and plan providers, and drug distribution businesses. Looking at the performance of individual healthcare companies that comprise the portfolio, one can easily note that Hospira was the most underperforming company on the list - its stock price rose only 36% over last two years. This is compared with an average rise of 85% in individual holdings over the same time period. Hospira is a provider of injectable drugs and infusion technologies that it develops, manufactures and markets globally. In medication management segment of its business, Hospira competes with such companies as CareFusion Corporation (CFN), ICU Medical, Baxter International, and others. After a quick look at few companies, CareFusion appeared to me as relatively undervalued compared to other companies in the sector.