Protecting Our Investors during the First Quarter Correction:
The focus of the Next Edge Bio-Tech Plus Fund (the “Fund”) is to position our investors in those select companies developing and commercializing breakthrough therapeutics, disrupting the treatment landscape, poised to appreciate hundreds of percent in the years ahead. We choose less than 50 companies out of a universe of almost 1,000. Each company has unique, non-economically sensitive attributes that may at times insulate them through market turmoil.
Nevertheless, market vicissitudes being what it is, we overlay protective hedges that insulate against market declines. The value of such insurance proved its worth during Q1 2018. When the correction runs its course, the Fund will advance from a higher level than it otherwise would have. To this end, the Fund achieved an all-time high in mid-March. Furthermore, our investors were more likely shielded from the impact of the market decline than they were in any other of their equity allocations.
For March, the Fund’s Class A Units1 advanced +1.60% while the Class F Units1 rose +1.69%, versus -0.59% for the Fund’s Benchmark2. Year-to-date and for the first quarter of 2018, the Fund’s Class A Units1 and Class F Units1 advanced +9.65% and +9.94% respectively versus a decline of -4.24% for the Fund’s Benchmark2. An outperformance eclipsing +13% during this tumultuous period.
BIOTECH CORRECTED BACK TO SUPPORT:
Emerging off bear market lows in spring 2016 into a new Bull cycle, the percent of Nasdaq Biotech Index (NBI) companies above their 200-DMA has acted well during this correction. This ‘EKG’ reading has pulled back from 69% to 50%, continuing a pattern of higher-low readings for the past 25 months. The NBI trend support rests at 3,200. The sector remains among the deepest value sectors in the market based upon historic benchmarks.
As investments divest from crowded tech positions and look for alternatives, biotech stands separate as a low-risk option, providing an opportune entry at favorable risk-reward valuations.
Composition of Holdings for March 29th, 2018
During March, the weight of Canadian holdings increased 2% from 28% to 30% as monetized hedges were deployed in averaging down on some of our holdings. US holdings declined from 61% to 59% due to the decline in underlying holdings. Cash remained stable at 11%. We expect that to decline during April as it is allocated to core holdings that have declined in value.
Portfolio Manager to the Next Edge Bio-Tech Plus Fund,
Associate Portfolio Manager to the Next Edge Bio-Tech Plus Fund