Yet Another Value Podcast

Investing in Biotech with Verdad Capital

The Yet Another Value podcast featured Verdad Capital’s Dan Rasmmanson and Greg Obachen discussing their new research paper on quantitative, value‑oriented investing in biotech. The duo explains why biotech, despite representing roughly a quarter of the Russell 2000, is routinely omitted from traditional screens because most firms are loss‑making, yet it offers a sizable, low‑correlation source of return for small‑cap investors. Verdad’s core insight is that ownership by sector‑specialist funds serves as a powerful alpha signal. Their data shows that biotech stocks held by multiple specialists consistently outperform, while those with no specialist ownership generate near‑zero returns. The model quantifies this by measuring specialist concentration relative to the total number of funds owning a stock, using a definition of specialists as funds with more than 50% of assets in biotech—about 70 such funds in their dataset. Greg notes, “Specialists act like a voting machine; consensus matters,” and Dan adds, “If sector specialists own none of it, returns are basically zero.” They also observe that specialist‑owned companies are often acquisition targets, which drives higher returns and lower volatility. The approach relies heavily on 13F filings to track specialist positions, with frequent rebalancing to capture shifting ownership patterns. For investors, the research provides a systematic framework to capture biotech’s upside while mitigating risk, delivering higher risk‑adjusted returns. It also suggests a broader methodology: leveraging specialist ownership signals in other niche sectors could unlock uncorrelated alpha for value‑focused portfolios.