The Next Edge Bio-tech Fund (the “Fund”) has advanced for the past six consecutive months and 9 of the past 10 months, despite the sector remaining mired in a 14-month range. For April, the Fund’s Class A
Units & Class F Units appreciated +3.04% and +3.12% respectively, versus a decline of -1.64% for the Fund’s Benchmark.
For the past 12 months, the Fund appreciated +36.04% and +34.73% for the Class A Units and Class F Units respectively, versus a decline of -6.77% for the Fund’s Benchmark, resulting in an outperformance of over +42%. The sector has not yet contributed to the Fund’s performance, which to this point, can be attributed to stock selection-discipline & risk management. Over the past year, seven of the Fund’s holdings have been acquired by larger companies.
During April, the Fund achieved another new high from inception, eclipsing the previous high set two years ago prior to the sector descending into a bear market. In contrast, the Nasdaq Biotech Index (NBI) stands -25.7% from its July 20th, 2015 peak of 4195, and the TSX Healthcare Index -59% from its August 5th, 2015 peak. As such it is still early in a potential new bull cycle. Values abound, BioPharma needs to acquire growth & pipelines, and investors remain pessimistic towards biotech’s prospects. Institutions and public investors are nowhere to be seen near the sector.
APRIL RETURNS DUE TO THE HEAVY LIFTING OF SIX HOLDINGS
The Fund has a substantial positioning in companies addressing Central Nervous System (CNS) indications such as Alzheimer’s disease, Parkinson’s disease, Epilepsy, Schizophrenia and related psychoses. In April, two of the Fund’s several holding’s focused on Alzheimer’s disease delivered stellar returns. Axovant Sciences Ltd. (AXON) rallied sharply when it announced that David Hung would become its CEO and would purchase million in stock. It’s a significant endorsement that took other investors by surprise. It’s curious to observe formerly skeptical investors change their minds on the company’s prospects even though Mr. Hung assessed the very same data and clinical trial design that the skeptics also had access to. You may recall that David Hung was also the CEO of Medivation, Inc. (MDVN), our largest holding and most significant contributor to 2016 returns when it was acquired by Pfizer Inc. (PFE) for USD 14 billion on September 27th, 2016.
ProMIS Neurosciences Inc. (PMN.To) soared in expectation of a cohort study that may provide insight into the early detection of Alzheimer’s disease. Akebia Therapeutics, Inc. (AKBA) rose as its partnership with Otsuka (JT4578) was expanded. Neurocrine Biosciences (NBIX) rallied on FDA approval for its breakthrough therapeutic Ingrezza for Tardive Dyskinesia without a black box label. NovoCure Ltd. (NVCR) soared on disclosing durability readout for its treatment of Glioblastoma and deeply oversold Canadian device maker of a robotic surgical system, Titan Medical Inc. (TMD.To), rose sharply as it raised capital to resume and advance its clinical and business plans.
REPAIRING THE DAMAGE
A favourite indicator of ours is measuring the percent of the ~190 companies in the NBI that are trading above their 200-day moving average – a bull market by definition. Over the past year, it continues to track the pattern of new bull markets by making higher lows. The next phase will see this reading rise above 60% up to 80% before a pause. Despite ongoing headline risk, the NBI is looking through the valley by making higher lows over the past 6 months and stands at the cusp of breaking through resistance to the highest levels in 14 months.
Composition of Holdings for April 30th, 2017
At the end of April, the Fund held US and foreign investments amounting to 54% of assets, down from 56% due to banking gains on a handful of positions which staged big rallies on positive developments. As profits were booked on the US side, the Canadian weight rose slightly from 35% to 36% as two holdings enjoyed substantial rallies. Cash increased from 9% to 10%.
1. Next Edge Bio-Tech Plus Fund returns are net of all fees and expenses associated with Class A Units charged from May 1st, 2015. Next Edge Bio-Tech Plus Fund returns are net of all fees and expenses associated with Class A1 Units, Class F Units, and Class F1 Units charged from March 1st, 2015. The historical annualized rates of return for April 30th, 2017 for Class A are 1 yr 36.04%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A; for Class A1 are 1 yr 35.23%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A; for Class F are 1 yr 34.73%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A; for Class F1 are 1 yr 35.67%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A.
2. The Benchmark for the Next Edge Bio-Tech Plus Fund is:
(i) 40% of the percentage gain or loss of the S&P/TSX Capped Health Care Index; plus
(ii) 60% of the percentage gain or loss of the NASDAQ Biotechnology Index
The Benchmark returns are unaudited and subject to final confirmation. The historical annualized rates of retun for the Benchmark for April 30th, 2017 are 1 yr -6.77%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A
* Part Month start date April 13th, 2015 to April 30th, 2015
** Part Month start date: February 17th, 2015 to Feb 27th, 2015
There are inherent limitations in any comparison between a managed portfolio and a passive index. Each index is unmanaged and does not incur management fees, transaction costs or other expenses associated with a private fund. There are risks inherent in hedge fund investing programs. Note to Investment Professionals: The information in the Monthly Report is being provided to current investors in the Fund and is being provided to their registered dealers for informational purposes only.
This is not a sales literature and cannot be used as such.
The Fund is not a trust company and does not carry on business as a trust company and, accordingly, the Fund is not registered under the trust company legislation of any jurisdiction. Units of the Fund are not ‘deposits’ within the meaning of the Canada Deposit Insurance Corporation Act (Canada) are not insured under provisions of that Act or any other legislation.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. These securities have not been and will not be registered under the United States Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States or to U.S. persons except pursuant to an exemption from the registration requirements of those laws.
The information provided herein is for information purposes only and does not constitute a solicitation, public offering, advice or recommendations to buy or sell interests in the Fund, the Portfolio, Units or any other Next Edge Product. Please refer to the Fund’s prospectus for more information on the Fund as any information in this Report is qualified in its entirety by the disclosure therein.
Opinions expressed are those of the author as of the date of their publication, are subject to change and may not reflect the opinion of all members of the Company. Some statements contained in this material concerning goals, strategies, outlook or other non-historical matters may be “forward-looking statements” and are based on current indicators and expectations at the date of their publication. We undertake no obligation to update or revise them. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those implied in the statements.