Tag Archives: Biotech

OUR 2020 RESULTS

Our net weighted average return in 2020 was +18.23%. Since 2015, we have generated a net weighted average return of +54.39%.

2020 was a challenging year. We were forced to navigate an all-out panic in financial markets while weighing the staggering human costs of the Covid-19 pandemic. Shortly after what turned out to be the market lows of the year in March we wrote the following:

“The most significant reasons as to why markets have rebounded are 1) the massive rescue package passed by the US Congress, and 2) the massive balance sheet expansion by the Federal Reserve. The amount of money with which the richest country in the world is ready to attack this crisis is without comparison in the history of the world. And what you learn in capital markets is that you don’t fight against the guys that make the bullets.”

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Strategy 2025

The best way to predict your future is to create it.

  • Abraham Lincoln

Our mission is to safeguard the future financial prosperity of our clients. While many find comfort in what may have worked in the past, we know that our goals can only be achieved by boldly looking into the future. As such, we are completely focused on finding investment opportunities that offer compelling upside convexity, while managing downside risk. Our purpose is not to time markets, but to identify ascendant industries and best-of-class companies and have the patience to reap substantial rewards.   

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OUR DECEMBER RESULTS

We are pleased to announce that our weighted average return in December was +2.72%, resulting in total net return of +18.39% in 2017. Since 2015, we have generated a net return of 37.30% with a Sharpe ratio of 1.48.

In terms of investment strategy performance, our weighted average net returns were (a) +4.34% for conservative strategies, (b) +15.34% for balanced strategies, and (c) +28.40% for aggressive strategies.

In our November commentary, we mentioned that many of our favoured sectors had performed poorly. In December, they stormed back with a vengeance. Our largest individual equity holding – Canadian mining company Teck Resources Ltd. – rallied 15%. Our largest equity fund holding – the Polar Biotechnology fund – increased by 4.75%. Both have continued to trade up strongly in the New Year.

A year ago, we wrote, “There seems to be a consensus in the air that 2017 will be a year of uncertainty and many challenges. While we understand the rationale for such a stance (a Trump presidency, rising rates, elections in Europe…), we cannot remember a time when any new year was predictable and without challenges. As such, we remain vigilant in trying to be maximally objective in regularly evaluating our current investment strategies, while trying to identify even better risk/reward opportunities going forward.”

Well, Trump is still POTUS, rates are still rising and Europe continues to have elections – and despite all of the ‘expert forecasts’ no one knows what 2018 will bring.

A few months ago, I read a quote that resonated strongly with me: “we remember the past fondly, because it lacks the fear of uncertainty.” The converse implication is that we fear the future because it is uncertain. Yet it serves us well to remember that the march of history has been one of progress. Today, we stand before more profound possibilities than ever before, which also means that the choices that we make will be all the more momentous.

As asset managers, we look forward to these challenges and opportunities and will be steadfast in seeking out new ideas and while continuing to heed the lessons of the past.

Speaking of the lessons of the past, just a couple of days ago we noticed that the world’s five largest cryptocurrencies had the equivalent combined market capitalization of the world’s seven largest publically traded mining companies. Anyone can buy cryptomining kits, and new crypto currencies are being ICO’d every day. It takes a minimum of nine years to build a copper mine. Crypto and blockchain have countless parallels with the boom and bust of the dot-com era. Guess what followed? The largest commodity rally of all time.

History does not repeat itself, but it tends to whistle a similar tune…

On behalf of our Client Portfolio Management team, I thank you for your continued trust and support, and wish you a happy, healthy and prosperous New Year!
Pauls

FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.

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LINKS!!!

LINK: Tesla Starts Producing Its Model 3
The first Tesla Model 3 rolls off the production line!
It’s finally here! The first Tesla Model 3 rolled of the production line on July 9th, as Elon Musk tweeted a photo of the newly-built vehicle. According to a series of tweets, it was poised to be delivered to Ira Ehrenpreis, the first of four hundred thousand people to put down the $1000 pre-order deposit. As it turns out, Mr. Ehrenpreis was kind enough to let Musk have the first ever production vehicle.
The new Model 3 has a base price of $35’000, making it the most affordable Tesla to date.

LINK: Biohacking
Biohacking – the future of humanity and medicine.
We, humans, are more conscious about our bodies as we ever have been, the company HVMN, a provider of subscription-based cognitive supplements, is looking to cash in on this phenomenon by creating devices that passively track levels of glucose and other chemicals of our bodies. According to Michael Brandt, the co-founder of HVMN, one would have the ability to track how their body reacts to various daily activities, such as having a soda, in an unprecedented way.
As of late, de-centralized health data collection has been gaining traction, as Apple gives the users of the iPhone a chance to contribute to various health studies through the use of ResearchKit, a framework which sends data collected by hundreds of thousands of iPhones to researchers, who then use the data to make groundbreaking medical discoveries.
Just imagine how different, thanks to such decentralization of medical research, the medical field is going to look like in ten years.

LINK: ETF That Bets Against Traditional Retail
Soon, betting against the retail sector is going to be as easy as going long an ETF!
Reportedly, ProShares is coming out with three ETFs, the prices of which are going to be the inverse of an index of traditional retailers. By using derivatives, two of the ETFs will give investors two to three times the inverse returns of the underlying index.
These types of products are a result of the markets turning bearish on traditional retail stocks and flowing to more modern alternatives, such as Shopify and Amazon.
On a cautionary note, ETFs like these can signal that a given trade in overbought, or oversold…

http://www.marketwatch.com/story/livan-hernandez-made-48-million-playing-baseball-now-its-all-gone-2017-07-10
Celebrities and bankruptcy – Twilight of the Idols.
Another star athlete files for bankruptcy – Livan Hernandez, a former baseball player, has reportedly filed for bankruptcy after not being able to payback roughly one million dollars to numerous creditors. It is important to mention that, throughout his career, Hernandez made around 48 million dollars.
Hernandez is not the first nor is he the last superstar to lose their wealth. If only they managed their assets at BlueOrange…

LINK: How Many Electric Cars Will It Take To Reduce The Demand For Oil
It seems that the fact that electric cars are the future of transportation has become common knowledge by now. One can’t help to wonder – How many electric vehicles would it take to replace 1 million barrels per day of oil demand? A writer, who goes by the name “Value Analyst” set out to find out. Their findings might surprise you.
We would note that in terms of manufacturing capacity and building battery factories, other car manufacturers have more existing facilities and cheaper costs of capital. Tesla has used convertible bonds to finance a portion of its debt, which can very dilutive to shareholders. It currently costs Daimler 1% to borrow in Euros…
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We Have Been Busy

This has been a fairly active month in terms of portfolio changes.

As mentioned previously, we have been busy selling off technology stocks and positioning ourselves in new companies and sectors that we believe will come to warrant the market’s attention.

We have already acknowledged that our sale of tech stocks might have been too early. However, we were heavily overweight the sector. The rise in tech equity prices, coupled with underperformance in other sectors, has resulted in a reevaluation of opportunity cost, and as such, we have acted accordingly.

One particular advantage of our absolute return investment philosophy is that we do not ever have to own anything. All components of our portfolios target a specific desired outcome and are also balanced so that we should rarely be forced to sell anything. As such, we would rather sell in a seller’s market, pause, and look to find the next set of opportunities.

Proper diversification means owning uncorrelated quality assets that will generate long term returns, while reducing portfolio volatility. As such we have recently moved money into to two sectors with very different characteristics that should nevertheless generate very nice risk-adjusted returns.

The first sector is US Energy Infrastructure. The second is the biotechnology sector (where we are increasing our exposure).

In US Energy Infrastructure, we are buying assets that have high barriers to entry and will continue to be in high demand to due the aggressive development of US hydrocarbon supply. The steady nature of cash flows and high dividend payments should mean that this sector will continue to attract investors that seek out bond-like returns in a low interest rate environment.

We have added to our biotechnology holdings because they have lagged the current market rally and because we believe that this sector will bring forth the most significant innovations of the foreseeable future.

It is worth mentioning that Dennis Gartman recently surrendered to the powerful move in technology stocks, now giving them precedence over his previous gospel of owning the producers of physical goods (LINK: Gartman on Tech). This is a notable reversal that ostensibly equates to a high priest changing religions. However, market sectors are not religions and we will take this as a contrarian clue to start investigating mining stocks and the producers of physical goods…
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The Internet of Things + Healthcare

This business is only going to get bigger and bigger:

LINK: IoT and Healthcare

Think of the simplest analytics that we use on cars, then think of the analytics (of lack thereof) that we currently employ for our own health.

Cars have had speedometers for over a hundred years (LINK: History of the Speedometer, but we are only now popularizing devices that constantly monitor our heart rate. Think of the analytics that are used in the auto industry today, then think about the equivalent for the human body. The possibilities are astounding.

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Biotech Update

Back in March, I mentioned that it was time to look at the Biotechnology sector. As I explained in the post, we choose to invest our core biotech holdings with very capable fund managers rather than a broadly based ETF such as the iShare NASDAQ Biotechnology ETF (IBB US). So far our chosen managers at the Polar Biotechlogy Fund have done a great job in a very challenging sector:

LINK: Contrarian Thoughts – Biotech Edition

polar bio

Looking at the biotech chart we have seen two nice runs coupled with two equally damaging sell-offs:

bio 1

I have a feeling that this third move will see a break out to new levels.

Why?

First of all, the main Biotech ETF (IBB US) is about to break through its 200 day moving average. Secondly, the SPDR S&P Biotech ETF that is has equally weighted holdings has already broken out:

bio 2

Thirdly – and most presciently – the entire sector held in very well yesterday despite a disappointing quarter from one of its champions – Gilead. People tend to be quite forgiving when they start to become smitten, and it looks like biotech is about to get a whole lot of love from investors.

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Contrarian Thoughts – Biotech Edition

When mutual fund sales people come to visit, they come with a bag full of presentations on their ‘hottest funds’. These include whatever funds have nice charts that go from the bottom left to the upper right, or whatever happens to be the hot topic of the day (unconstrained, short duration bond funds were quite popular over the past 6 months). This makes sense. Their job is to sell their funds, and they focus on whatever funds they think will capture our interest. As such, they are invariably thrown for a loop when I ask them to tell me about their worst fund.

I do this, because our job is to select investments that will make money, not those that already have, or have already seen a massive inflow of funds. And it is the under-owned, beaten down sectors that tend to have the greatest degree of out-performance when they finally manage to turn around.

One of the hottest sectors over the past couple of years has been biotech. From 2012 until last summer, biotechnology stocks experienced a sensational rally. Since then, however, their performance has been pretty grim. Here’s a chart of the popular iShares NASDAQ Biotechnology ETF:

ibb

Biotech is a field that I know very little about, but I have a high degree of certainty it will be one of the defining industries of the next 20 years and beyond. As such, I believe that a fund manager with a high degree of experience and investment acumen in the field of biotechnology should be able to outperform the index over the long term. In the short term, however, you can’t fight the tape. Sell-offs in hot sectors tend to be violent and all encompassing. And we have been waiting for a sell-off just like this.

Here is an excerpt from the February a comment from a highly rated biotech fund manager:

“As we’ve said previously, while many investors may be struggling to find reasons to be optimistic right now, the fundamentals of the global biotechnology sector should inspire confidence and enthusiasm. The reason is that a powerful technology and product cycle is underway and supplying exciting new medical solutions to the demands of healthcare systems around the world struggling to keep up with the profound secular demographic forces of ageing populations.”

Can biotech stocks keep falling? Of course. But the time to take a good, hard look at them is when they have sold off and are no longer attracting ‘hot money’, not when they are trading at their highs.

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