Feeling the Aftermath of the “Brexit” Vote
“Faith is taking the first step even when you don’t see the whole staircase.” – Martin Luther King Jr.
The unexpected outcome of the “Brexit” vote threw the global currency and equity markets in deep turmoil on Friday. The pound and the various European indices fell seven to ten percent during trading Friday. This was the deepest sell-off in the European bourses since the dark days of 2008 and the pound trades against the greenback at its lowest levels in three decades.
Our markets posted about half of those losses on Friday which the three major equity indices all declining some four percent on the day. Investors will lick their wounds this weekend and have some time to contemplate what the U.K. leaving the EU actually means for the global economy. Trying to find a silver lining in Friday’s carnage, at least the biotech sector barely outpaced losses within the overall equity market and did not have to test the bull market bottom at 240 to 245 level on our benchmark below.
Performance Update:
As of Friday, our benchmark the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), the largest ETF focused on the biotech sector with almost $9 billion in assets, is now down 27.60% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down 8.06% on average while our small cap portion of our portfolio is now down 26.59% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 17.33%, 1027 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 12.69%, 1,491 basis points above the benchmark.
Portfolio News:
Our portfolio fell largely in line with our benchmark this week as it continues to hold a large performance advantage over this biotech ETF since launch. After three months of no activity in the analyst community, Ardelyx (NASDAQ: ARDX) was reiterated as a Buy at both Leerink Swann and Cantor Fitzgerald this week. Leerink has a $17 price target on Ardelyx and Cantor is slightly more optimistic with a $19 price target. Both target prices are more than double the current price of the small biopharma with three solid “shots on goal” between now and next year.
One stock that did buck the downward trend in the market this week is ANI Pharmaceuticals (NASDAQ: ANIP) which continues to be one of our strongest performing small caps over the past couple of months. Eagle Pharmaceuticals (NASDAQ: EGRX) has been very weak over the past two weeks and now goes for eight times this year’s expected profits. The company has a more than solid balance sheet as well but has faced some bucket shop shareholder lawsuits due to the recent drop in its stock price. A decent amount of all small caps in the sector that have dropped significantly during the deep bear market face the same “nuisance” suits.
These are the equivalent of a legal shakedown but are usually quickly settled or thrown out of court. The medium term future of this biopharma will depend on how fast Treanda sales migrate over to its improved version “BENDEKA.” We should get a nice insight into that migration when the company reports earnings early in August. I added a few shares to my holdings on the deep decline in the market Friday.