Self-Taught Investor Beating Peers With Lesson From Lynch

Eventide CIO Finny Kuruvilla
Eventide CIO Finny Kuruvilla. Source: Eventide via Bloomberg

Finny Kuruvilla has a master’s from Massachusetts Institute of Technology and a doctorate and medical degree from Harvard University.

In his spare time, he taught himself how to invest. Turns out he’s pretty good at it.

The $1.7 billion Eventide Gilead Fund that Kuruvilla runs was the top-performing diversified U.S. stock fund over the past five years, according to Chicago-based Morningstar Inc. Kuruvilla pulled off that feat while working on the fund part-time. Until last year he had a full-time job as a venture capitalist.

Kuruvilla, 40, considers himself a disciple of Peter Lynch, the legendary stock picker at Fidelity Investments, who told investors they should put money into companies whose products they know and understand. Using that strategy, Kuruvilla bought biotech stocks including Pharmacyclics Inc. and NPS Pharmaceuticals Inc., which were later acquired at prices dramatically higher than he paid.

“I use more of my medicine now than when I saw patients,” Kuruvilla said in an interview in Boston, where he is based. “My expertise has been a huge help.”

The fund returned 25 percent a year over the past five years, beating the broader stock market by an average of 7.8 percentage points. A second Eventide fund devoted to healthcare gained 71 percent over the past year and has $261 million in assets.

The Gilead fund had 25 percent of its money in biotechnology and pharmaceuticals as of Dec. 31, a regulatory filing shows.

‘Ten-Bagger’

In 2010, Kuruvilla read a paper about an experimental blood cancer drug being developed by Pharmacyclics, based in Sunnyvale, California.

“I thought the results they were showing were amazing,” said Kuruvilla, who specialized in blood disorders when he practiced medicine.

After confirming his impressions with a former colleague, he bought the stock in the first quarter of 2011, when Pharmacyclics shares sold for an average of $5.40, according to data compiled by Bloomberg.

In March, AbbVie Inc. paid $261.25 a share to buy Pharmacyclics to gain control of its blockbuster blood cancer therapy. Kuruvilla described the gain as more than a “ten-bagger,” a term Lynch used in his investment books for stocks that climbed 10-fold.

Investing Hobby

NPS, another holding, was acquired by Shire Plc in February for $46 a share. Eventide bought the stock in the third quarter of 2010 when the shares sold for an average of $6.50, according to data compiled by Bloomberg.

Kuruvilla always invested on the side when he was in medicine. In 2008, he turned a hobby into a career when he joined Clarus Ventures, a health care venture capital firm with offices in Boston and San Francisco. That same year he started the mutual fund with money from friends and family.

A practicing Christian, Kuruvilla wanted the fund to reflect his values. In addition to avoiding certain industries like tobacco and gambling, the fund invests in businesses “that create goods and services we can be proud of,” Kuruvilla said.

Eventide’s website has a “faith and business” blog that explores the intersection of religion and commerce. In the fund’s first few years, Kuruvilla did much of his fund-raising by tapping into a network of Christian financial advisers.

‘Biblically Responsible’

“Some people think you have to choose between investment excellence and morality,” said Jeff Rogers of Orlando, Florida, an early investor in the fund who is active in a movement called biblically-responsible investing. “With Eventide you get both.”

Attracting money is no longer a problem for Kuruvilla. After Eventide Gilead gained 53 percent in 2013, investors poured $564 million into the fund last year and another $486 million in the first four months of 2015, according to Morningstar.

The fund’s next biggest area of concentration after health care is autos and auto parts. Kuruvilla bought Tesla Motors Inc. in 2011 after listening to two people rave about the car and tell him they were members of a Tesla club. Following the Peter Lynch principle, he went out and test drove a Tesla and had his brother do the same.

“I drive a Volvo, but I’m not in a Volvo club,” he said.

Shares of the Palo Alto, California-based carmaker, which sold for an average of about $27 a share when Kuruvilla first invested in 2011, closed Tuesday at over $247.

Expensive Stocks

The fund manager had a personal connection to another successful investment, Bluebird Bio Inc. of Cambridge, Massachusetts. Kuruvilla met the management team at his venture capital firm and was impressed with them and their technology, a gene therapy for sickle-cell anemia.

BlueBird, the largest stock holding in both Eventide funds, has doubled in 2015.

David Kathman, a Morningstar analyst who follows Eventide, said the fund may hit a rough patch once the rally in biotech ends. The NASDAQ Biotechnology Index has returned three times as much as the Standard & Poor’s 500 Index over the past five years.

“Biotech stocks are not going to stay this hot forever,” Kathman said in a telephone interview.

The biotech index lost almost two-thirds of its value in the two years ended Sept. 30, 2002, according to data compiled by Bloomberg. The index currently trades at a price-to-earnings multiple of 86 compared with 19 for the S&P 500.

While conceding that biotech stocks have run up in price, Kuruvilla said the field still holds promise for investors as the science gets better and large companies buy up small firms with good pipelines. The volatility of the stocks could also be a plus, he said.

“A lot of people pile into these stocks late after they have gone up and if something bad happens they will head for the hills,” said Kuruvilla. “That creates opportunity for a long-term investor who understands the field.”

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