A central theme we have pressed since the inception of the Next Edge Bio-Tech Plus Fund (the “Fund”) is that the focus of the Fund is not on owning last cycle’s leaders, or investing in value-traps they may turn out to be. Instead, the Fund is positioned in next cycle’s emerging leaders. These are the companies that have:
a) Overcome most of the onerous and costly clinical hurdles;
b) are expected to grow revenues rapidly with pricing power;
c) be the best-in-class therapeutic with favourable FDA labeling for their indication; and
d) be the innovators of their therapeutic, making them attractive potential acquisitions.
During October, the bifurcated performance of the large-cap biotech sector, which broadly disappointed on revenue growth, versus emerging growth biotech sector, that the Fund is positioned in, is likely to play out throughout this cycle. For October, the Fund Class A Units advanced +1.47% and +1.57% for the Class F Units versus a decline of -3.01% for the Fund’s Benchmark.
For the past 12 months, the Fund appreciated +26.09% for the Class A Units and +25.30% for the Class F Units respectively versus an increase of +12.21% for the Fund’s Benchmark1,2.
While the Nasdaq Biotech Index (NBI) declined a significant -5.8% in October, the TSX Healthcare Index (^TTHC) once again rose +5%, solely on the back of a 51% advance in a heavily weighted cannabis company upon signing a partnership agreement. Was the partner a biopharma company interested in sourcing commodity marijuana for clinical trials? Of course not, the partner was a beer company. While they are at it, the TSX Healthcare Index (^TTHC) may as well add a wine company to the index since there is no denying its health benefits.
Everyone knows it is the consumer recreational market expectations, a vice, not the medical marijuana market they are cloaked in, that is driving these stocks. Furthermore, the FDA prefers synthetic rather than natural sources of tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”) as it prevents variations in chemical compositions. Acres of growth therefore are not necessary to provide chemical derivatives for therapeutic clinical trials.
AS IN 2016, A SECTOR CORRECTION IN OCTOBER:
The Nasdaq Biotech Index (NBI) corrected back to its 1-year uptrend line (red dashed trend line.) As a result, the broad list of biotech companies in bull trends, as classified as being above their 200-Day Moving Average (DMA), declined from 65% to 50% of NBI companies. Over the past 14 months, this measure has oscillated between 40% and 65% six times. This reading typically reaches +80% before the new bull trend pauses.
Composition of Holdings for
October 31st, 2017
At the end of October, the Fund held US investments amounting to 58% assets, a decrease of 2%, while the value of the Canadian holdings rose 1% to 32%. Cash rose slightly to 10% as the position in Titan Medical Inc. (TMD.to) was liquidated into its big rally.
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 October 31st, 2017 for Class A are 1 yr 26.09%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A, CARR 1.24%; for Class A1 are 1 yr 25.46%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A, CARR 3.34%; for Class F are 1 yr 25.30%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A, CARR 3.10%; for Class F1 are 1 yr 25.91%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A, CARR 4.16%.
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 return for the Benchmark for October 31st, 2017 are 1 yr 12.21%, 3 yr – N/A, 5 yr – N/A, 10 yr – N/A, CARR -7.00%.
3. Part Year
* 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.