ThumbTack Fund Report 2 – Dancing Between The Raindrops (Guest Post)
Part 2 Of My Fund Report
This post was originally posted here. The writer, ThumbTack Investor is a veteran community member and blogger on InvestingNote, with a username known as @ThumbTack Investor and has 3610 followers.
Fund Report part2; S&P weakened considerably since the inaugural TTF’s 1st report on the 28th Aug: https://thumbtackinvestor.wordpress.com/2020/09/06/thumbtack-fund-report-1-tough-times-dont-last-but-tough-funds-do/
That’s exactly what I’ve been doing in September.
I’ve managed to dance between the raindrops in the past month or so, as TTF continued to grow strongly, largely on the backs of just a couple of nicely timed positions.
1 of which is to enter into long positions in BBBY just the week before earnings release:
TTF fund cumulative money weighted return since inception in Feb 2020: +25.66%, YTD returns: +25.45%
Total deposits: USD 165,913.77
Current NAV: USD 194,405.75
This compares favorably with the 3 benchmarks I use:
I’m pleased with how TTF managed to dance between the raindrops, bucking the trend and adding further gains in a volatile September, from a YTD return of +15.46% to the current +25.45%, adding 9.99% to the returns in September alone.
Since the last report about a month ago, SPY has dropped 2.32%, reflecting the correction in tech in September. VT has dropped 1.3% YTD, tracking the decline in S&P.
STI has remained fairly “resilient” by dropping only 0.43% in September, but then again, a -20.85% YTD return is scant comfort. I guess GOT wisdom applies here: “What is dead, may never die!”
TTF’s top 5 generals is a highly coveted list… and truth be told, I’m surprised that I’ve made changes to the 5 names more frequently than I expected to when I started in Feb.
- Broadcom (AVGO)
- Bausch Health (BHC)
- Tencent (0700)
- Agilent Technologies (A)
In TTF Report 1:
- Bausch Health Companies
- Frontage Holdings (HK listed)
- Broadcom (AVGO)
- Bausch Health Companies (BHC)
- Frontage Holdings (HK listed)
- Mercadolibre Inc (MELI)
- Bed Bath & Beyond Inc (BBBY)
This list is highly likely to change again in the coming months, as I’m currently toying with the idea of replacing the newest entrant: BBBY.
With the recent jump in the share price, I’m considering taking profit and replacing it with another heavily knocked down, but displaying strong FCF generation, value play. The DD would take a bit more time though, all this work is messing up my sleep recently.
Of the 5 generals, AVGO, MELI, and BBBY are all in the green. BHC and Frontage are still currently net losing positions.
I’ve also started employing some leverage in September, as cash levels dip into the negative categories. The main reason for that is the MELI position. Based on my entry of USD 1,030 or so, a mere 100 share position would cost USD 103k. I foresee that the leverage would be chipped away though, over the coming months as I churn the premiums on options. Hopefully. Either that or when I divest MELI fully.
Peak to trough, it’s been a christening experience for my new TTF fund, from a near-death experience of almost -50% to the current outperformance of +25%
I’m actually starting to toy with the idea of looking into SG markets for the next general. US is likely to experience greater swings and volatility as we approach the elections. In contrast, SG has already dropped significantly, and perhaps there’d be some value emerging. I haven’t really looked into it, just toying with the idea. 1 minor bugbear is that since I can’t buy SG equities with my IB account, tracking returns would not be automated so that’s making me hesitate.
Finally, I’d end off by giving an update on a previously discussed company: Avenue Therapeutics (ATXI)
I’ve written extensively about the company back in May 2019 here.
Here we are, 17 months on. ATXI’s share price has appreciated from USD 4.50+ back then, to the current USD 11 or so, which is a massive return for 1.5yrs.
PDUFA date is set on 10th October, which is less than a week away. For the uninitiated, this is the date whereby FDA has to give a reply regarding ATXI’s new drug application (Tramadol given by IV route)
In other words, the investing thesis comes to a head within a week. Sort of anyway (there are several other scenarios that can play out)
I’ve just divested the remaining stake I own at USD 11 and USD 11.15 on Thurs and Fri.
My ATXI stake was mainly held in the main fund, not this new TTF, so it really has much of an impact on the performance of the fund, although yes, TTF did own a small stake of a few thousand shares at 1 point.
If FDA gives the full approval within this coming week, ATXI’s share price is likely to spike up to the takeover price of USD 13.92, which represents a very cool +26.5% gain from the current share price, in a mere 1 week. And since the take over offer includes additional CVS, the share price could even spike yet higher than USD 13.92.
So why divest right now, given that I’ve written extensively about ATXI, and remains pretty confident that IV Tramadol would likely get approval eventually?
Maybe there’s something about a -50% return (back in March/April) that changes your psyche and makes one less willing to make calculated bets. If ATXI doesn’t get approval, the share price would almost certainly tank. It could be -20%, it could be -30%, it could even be -50%. It depends on the reasons stated in the CRL (the complete response letter is a nice letter FDA sends to the company if they reject the application, detailing the reasons why)
At my divested price, I’ve already collected an over +100% gain (ballpark figures of around 120% or so). It just doesn’t feel right to stick around for a potential 26.5% return. Long time readers would know that I always like to leave something on the table and leave the party early.
Also, in the midst of updating my DD as I was pondering whether to hold for this critical event or to sell out early, I’ve compared this situation to another similar opioid that got approved just recently: https://www.thepharmaletter.com/article/trevena-soars-as-it-gains-fda-approval-for-olinvyk
“Olinvyk, which is approved in adults for the management of acute pain severe enough to require an intravenous opioid analgesic and for whom alternative treatments are inadequate, will be commercially available when the US Drug Enforcement Administration (DEA) issues its controlled substance schedule in around 90 days, the company noted.”
Trevena’s share price soared upon news of the approval of Olinvyk. Note that this is a like-for-like comparison, as Olinvyk is an IV opioid and it’s pretty surprising to me that FDA would approve it in the midst of all the backlash from the opioid crisis in the US. So, on the surface of it, this seems favorable to ATXI’s IV Tramadol, as Tramadol is a schedule II DEA drug and is less addictive than Olinvyk, a full opioid.
In my mind, it’s senseless for FDA to approve Olinvyk (yes, it has other favorable characteristics over other currently used full opioids, which is why FDA approved it.) and not approve Tramadol eventually.
I keep using the word “eventually” cos that’s been playing in my mind. Trevena got the approval in August 2020, but that’s not after a setback in their initial application. When Trevena first applied, they got a rejection (aka CRL) from FDA back in late 2018: https://markets.businessinsider.com/news/stocks/trevena-receives-complete-response-letter-for-oliceridine-from-fda-1027685716
The stated reasons in the CRL?
“Consistent with the discussion at the recent Advisory Committee meeting, FDA has requested additional clinical data on QT prolongation and indicated that the submitted safety database is not of adequate size for the proposed dosing. FDA also requested certain additional nonclinical data and validation reports.”
I’m just concerned that this may happen to ATXI too. I’ve seen and read and re-seen and re-read their clinical trials and published papers, and they don’t seem completely robust.
For example, Trevena submitted 2 RCTs (Randomized controlled trials) as part of its application:
1.)Benefit and Risk Evaluation of Biased μ-Receptor Agonist Oliceridine versus Morphine, by lead author Albert Dahan, M.D., Ph.D., Professor of Anesthesiology, Leiden University Medical Center.
2.)Evaluating the Incidence of Opioid-Induced Respiratory Depression Associated with Oliceridine and Morphine as Measured by the Frequency and Average Cumulative Duration of Dosing Interruption in Patients Treated for Acute Postoperative Pain, by lead author Sabry Ayad, M.D., Department of Anesthesiology at Cleveland Clinic.
Each study included a sample size of 790 patients, and yet in its CRL in 2018, the FDA indicated that “the submitted safety database is not of adequate size for the proposed dosing”.
In contrast, ATXI too, submitted 2 RCTs, with a sample size of just 409 patients. (https://link.springer.com/article/10.1007/s40122-020-00184-2)
I’m not saying this is 100% like for like comparison, as there are so many other factors at play here. For eg, the initial rejection for Trevena could be related to the higher IV dosing levels, and hence the need for a greater sample size. Tramadol also has a long history, a better track record, and is more widely used (elsewhere in the world).
Yet, the risks just don’t seem to be able to entice me to wait another week till D day. If FDA asks for some additional information like a simple bioequivalence study to “top up” ATXI’s application, the share price would still tank cos I don’t think the markets understand such technicalities in that great a detail. The headlines would just be brutal.
Anyway, I’m happy with my returns here, and if FDA gives full approval next week, and I miss out on a massive +26.5% gain, so be it.
I’ve made my bed and I’m gonna lie in it. It wouldn’t really upset me too much.
But if it tanks and I didn’t escape early enough despite doing all that DD and knowing what I know… yeah, that would upset me.
So there. As you can see, the past month has been 1 filled with lots of researching and tinkering around. Like I said, I’m doing a tap dance between the raindrops.
I’m trying to protect my returns from here. I’d be happy to end 2020 with a +25% return, which would be pretty stellar for any new fund’s 1st year. Plus it’s 2020 so anything can happen. Q4 is setting up to be highly volatile and crazy, and my main focus is on defense, not to try to find the next shooting star. (OK, the poor analogy here. Shooting stars are falling meteorites so it comes down, not up).
Anyway, that’s all for TTF’s 2nd report. I’d be happy to share in greater detail, my updated ATXI research and/or other related comparisons if anyone wants it, just drop me a mail.
Once again, this article is a guest post and was originally posted on ThumbTackInvestor‘s profile on InvestingNote.
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