Further gains for healthcare hedge fund Rhenman as jobs recovery boosts medical insurance stocks

Medical technology

Healthcare-focused equity hedge fund Rhenman & Partners generated further gains last month as falling US unemployment helped push medical insurance stocks higher.

Its flagship healthcare-focused hedge fund finished the first quarter up 5.56 per cent, as a rotation into cyclical equities which stand to gain from the economic recovery underpinned March’s positive returns.

The Rhenman Healthcare Equity Long/Short strategy advanced 3.6 per cent in its main euro-denominated IC1 share class last month. The SEK-denominated RC1 class rose 4.03 per cent and has now made more than 7 per cent since the start of 2021. Over the fund’s 12-year run, it has now generated a 724 per cent gain since inception, with an annualised return of some 20 per cent since inception.

The Stockholm-based strategy - which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and services stocks – also took profits from successful bets on pharma, med-tech and service sub-sectors, though biotech positions detracted from performance, Rhenman said this week.

One of the top contributors was US health insurer Anthem, which mainly focuses on health insurance for businesses and employees, and is benefitting from the drop in US unemployment.

“They are part of the reopening stories; they benefit from people getting back to work and getting their employment back,” Henrik Rhenman, founding partner and chief investment officer, said on a client webcast this week. “It’s very much a high correlation between the insurance business and the job market.”

The firm noted health insurers have posted better-than-expected Q1 numbers, as the Biden administration’s expanded Affordable Care Act has benefited insurance companies linked to the Medicaid and Medicare programmes. One such name is UnitedHealth Group, another key contributor to Rhenman’s March gains, which has broad exposure to all sectors of the US economy.

On the downside, the worst contributors were Teladoc Health, which provides virtual care services, and Mirati Therapeutics, a US biotech firm that develops new cancer therapies.

“Biotech has been a bad performer since mid-February - Mirati was part of that downturn of the biotech sector,” Susanna Urdmark, portfolio manager, said. “That being said, we still have companies that have been performing within the sector.”

Looking ahead, Rhenman sees cyclical stocks, financial companies and value stocks maintaining their upward momentum in the recovery, and expects them to lead the stock market to new price records.

In a performance update, the fund acknowledged that concerns over drug price reforms will continue to loom over pharmaceutical and biotech companies for some time.

“The fund will likely face a critical period of troubling political developments; a fundamental idea is that the pharmaceutical sector should take part in financing an upcoming US infrastructure package.

“We have cautiously reduced the fund’s proportion of companies that most heavily rely on free pricing, in favour of companies that show strong recovery potential over the next two years,” it said.

The firm has tweaked its portfolio to help stave off the risks from share price declines in such companies, but Rhenman remains hopeful of a shift towards higher sales volumes in the event of lower drug prices.