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George Soros is widely considered one of the greatest hedge fund managers of all time, and for good reason. During his tenure at the Quantum Fund, Soros reportedly generated average returns in excess of 30% per year, crushing the broader markets in the process.
As such, his namesake fund, Soros Fund Management, remains one of the most closely watched hedge funds in the world, despite his retirement in 2015. And the fact that the Soros Fund has over $4.6 billion under management means it can have a real impact on the market, giving investors all the more reason to keep tabs on its quarterly buys and sells.
Biotech investors in particular may want to dig deeper into the fund's quarterly transactions right now: The Soros Fund sold its entire holdings in theiShares Nasdaq Biotechnology Index Fund (NASDAQ: IBB),Gilead Sciences(NASDAQ: GILD), andNovavax(NASDAQ: NVAX)in the second quarter of 2016, according to recent 13F filings with the SEC.
|Equity||Shares Sold in Q2 2016||Originally Purchased|
|iShares Nasdaq Biotechnology Index Fund||67,600||Q1 2016|
|Gilead Sciences||3,600||Q1 2016|
Data source: whalewisdom.com.
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Should retail investors take a cue from the Soros Fund?
Soros Fund Management may have headed for the exits, but there are actually some compelling reasons to buy all three of these biotech equities right now. Although the iSharesNasdaq Biotechnology Index Fund has performed poorly this year due to the political blowback regarding drug prices, that headwind should fade once the U.S. presidential election wraps up.Even if Hillary Clinton wins and tries to make good on her campaign promises to institute new drug pricing controls, the pharma industry's ginormous lobbying machine can almost certainly block any major reforms. Put simply, high drug prices are probably here to stay. This may setthis broad biotech fund up for a substantial rebound in 2017.
And while Gilead has stumbled after sales of its top hepatitis C medicine, Harvoni, apparently hit their peak, the biotech still has plenty of ammo to pursue a single large acquisition or a handful of smaller deals to reinvigorate its top line moving forward. Gilead is also trading at a ridiculously low P/E ratio of seven right now, implying that the market expects its hepatitis C franchise to completely crash. That's unlikely to occur, especially with its new hep C medication, Epclusa, already showing tremendous promise, so this top biotech stock simply looks too cheap to ignore.
Novavax, for its part, is charging toward a pivotal late-stage data readout for itsF-protein nanoparticle RSV vaccine candidate in elderly adults, which could generate billions in annualsales. While a positive top-line readout is never a given and Novavax's shares would obviously tumble if this trial turns out to be a bust, the company does sport a host of other high-value vaccine candidates that should soften the blow in a worst case scenario.
The bottom line is that it's probably unwise to follow in the footsteps of the Soros Fund on these three biotech plays. If anything, the opposite seems to be warranted, especially for patient investors looking for high-growth opportunities in the red-hot pharma industry. We may never know why Soros Fund Management sold out of these positions, because hedge fund managers have different strategies and motivations than we ordinary investors. While 13F filings can be good sources of investing ideas, individual investors would do best to stick to a long-term, fundamentals-focused strategy, rather than blindly following the pros.
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George Budwell owns shares of iShares NASDAQ Biotechnology Index. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.