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State of the Industry: September 2018

Muhammad Suhaib Analyst, Client Analytics

AMRN rally boosted healthcare-focused funds during an otherwise unexceptional month for the industry and benchmarks alike.

As Q3 closes, the Hedge Fund Universe (HFU) observed a red month (MTD -0.45%/ 8.24% YTD) and a continuation in alpha detraction from prior months. The S&P 500 (0.59% MTD / 10.56% YTD) while positive, also saw diminishing returns.

Out of the top five best performing hedge funds, three were healthcare focused (Stonepine Capital, Oracle Investment Management, and RTW Investments). Small managers (<$1bln of LMV) still dominate the list with the exception of RTW Investments (LMV of $1.74 Billion). Amarin Corp (AMRN) was the biggest contributor (4,471 bps) in Stonepine’s portfolio, making Stonepine the best performing fund for the month. AMRN surged over 5x in the last week of September after successful trail results and speculations of M&A. It was also the top alpha generating stock for hedge funds. As of September, 28.4% of all AMRN shares were owned by the HFU.

Taking a cross sectional view of the HFU and analyzing performance by sectors, there was an even split between positive and negative contributors. The HFU generated alpha in only three of the elven sectors (Materials, Real Estate and Utilities). It’s noteworthy that while Healthcare had the highest contribution in the HFU portfolio (13bps MTD), it was also the biggest alpha detractor (-20bps MTD). Looking at the year thus far, Industrials remain to be the highest alpha generating sector (25bps YTD).

Looking at the Novus 4C indices, Concentration was the only one with positive performance (3.02% MTD) with biggest contributions coming from Healthcare, Energy and Financial names. The lowest performer for the month was the Crowdedness index where all sectors but Energy had a negative contribution and biggest detraction came from Consumer Discretionary names. Looking at the year thus far, the Concentration index, staying consistent with previous months, retains its number one spot for the highest performing index (38.15% YTD).

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