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This Hedge Fund Returns 22% Annually, Here Are Its Latest Picks

Sieni Kimalainen

DAFNA Capital Management was founded in 1999 by Dr. Nathan Fischel, who is the fund’s CEO. Dr. Fischel is Pediatric Hematologist-Oncologist with a long career in medicine. He graduated from Technion School of Medicine in Israel and completed his residency at the Children’s Hospital and Dana-Farber Cancer Institute, Harvard Medical School, Boston. He continued his post-graduate studies in Molecular Genetics at Oxford university, and he is also Professor Emeritus at the UCLA. Apart from medicine, he has been involved in equity markets since 1993, when he co-founded a venture capital-backed genomics biotechnology company, which was later purchased by Warner-Lambert (Pfizer).

As for DAFNA Capital Management, it focuses on investing in small- to mid-cap biotechnology companies, and development of medical technology. The fund employs event-driven strategies and makes long and short investments. The fund invests in a large number of companies with various market size, business model and other financial and trading criteria.

DAFNA Capital Management’s performance during the last several years was exceptional, the fund was returning positively and steadily. In 2014 it returned 6.5%, followed by 12.08% in 2015, 8.44% in 2016, and an outstanding 29.98% in 2017. In 2018 it still managed to deliver a positive return of 7.98% in a down market, while roaring back with a strong 22.8% in 2019 through June. With an annualized return of 21.83% the fund seems to have chosen the optimal strategy.

[caption id="attachment_758434" align="aligncenter" width="450"] Nathan Fischel of DAFNA Capital[/caption]

Nathan Fischel DAFNA Capital

Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. Our long strategy is based on the consensus picks of the 100 best performing hedge funds. This strategy was launched 5 years ago and generated a cumulative return of 115%. You can think of it as a mutual fund that returned 16.2% annually over the last 5 years, vs. 11.1% annual gain for the S&P 500 ETF (SPY). Basically we outperformed the S&P 500 Index by 5 percentage points annually by identifying the top stock picks of the best hedge fund managers (see the details here).

Our short strategy is based on shorting hedge fund hotels that are likely to experience large hedge fund sales during market weaknesses. We launched this strategy in February 2017. It’s been almost 2.5 years and the stock picks of this strategy lost a cumulative 24.7% vs. a cumulative gain of 30.8% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -11.2%, vs. 11.8% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 23 percentage points. Jim Chanos doesn’t generate this kind of performance. The best thing about this short strategy is that it provides an excellent hedge during market meltdowns. For example, in Q4 of 2018 when the S&P 500 Index lost nearly 14%, this strategy’s picks lost 25% protecting our premium subscribers from large losses.

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Our newsletters are successful because we follow hedge fund managers like Dr. Nathan Fischel to identify the best and worst hedge fund stock picks. In this article we are going to take a look at DAFNA Capital Management’s top stock picks for Q2 2019.

The fund’s fifth top stock pick for Q2 2019 was Alder Biopharmaceuticals Inc (NASDAQ:ALDR), a pharmaceutical development company specializing in therapeutic monoclonal antibodies. Even though Dr. Fischel decided to boost the company for 11% during this quarter, it remained at the fifth place in the fund’s portfolio since the previous quarter. A total of 15 hedge funds tracked by Insider Monkey were bullish on the company, a decrease of 25% compared to Q1 2019. The company’s top shareholder was Redmile Group, holding a stake worth $97 million. Other hedge fuds like Samlyn Capital, Citedel Investment Group, and Foresite Capital were among the company’s top shareholders as well.

DAFNA Capital Management’s fourth most valuable position during the second quarter was AtriCure Inc. (NASDAQ:ATRC), remaining unchanged since the previous quarter. There were 20 hedge funds investing in the company during Q2 2019, which is 7 hedge funds less compared to the first quarter. Among them, Tamarack Capital management held the largest stake, worth $21.1 million. Right behind were GLG Partners, Royce & Associates, and Sectoral Asset Management. DAFNA Capital Management was the fifth largest shareholder of AtriCure Inc for Q2 2019, which reported holding 318,729 shares worth $9.5 million.

At the third place in the fund’s portfolio was Blueprint Medicines Corp (NASDAQ:BPMC), boosted by 3% during the quarter. A total of 27 hedge funds were investing in the company during the second quarter this year, a change of -27% since the previous quarter. Of the funds tracked by Insider Monkey, Perceptive Advisors held the most valuable stake in Blueprint Medicines Corp, worth $114.4 million. Other hedge funds bullish on the stock were Casdin Capital, Viking Global, and Cadian Capital.

The second most valuable position in DAFNA Capital Management’s portfolio for Q2 2019 was Sage Therapeutics (NASDAQ:SAGE), remaining at the same place since the previous quarter. A total of 25 hedge funds tracked by Insider Monkey held long positions in the stock, a decrease of 13 hedge funds since the previous quarter. Among them, Palo Alto Investors held the most valuable stake worth $145.6 million. Other top shareholders included Farallon Capital, Casdin Capital, and Senator Investment Group. DAFNA Capital Management was Sage Therapeutics’ fifth top shareholder, holding a $22.7 million position, comprising 8.52% of the fund’s portfolio.

Finally, remaining at the first place in DAFNA Capital Management’s portfolio in Q2 2019 was Stereotaxis Inc. (NYSE:STXS), a company that focuses on innovative robotic technologies in medicine. The company’s Chairman and CEO is David Fischel, who is also DAFNA Capital Management’s Principal. In 2018 the fund filled and amended 13D, which you can see here, taking a large stake in the company. The company was trading on the OTCQX just until recently, when it was approved for listing on the NYSE American exchange. For now, the company’s only shareholder is DAFNA Capital Management, which holds 13,680,554 shares worth $39.7 million. This position amasses 14.91% of the fund’s portfolio.

Disclosure: None.