A Real-Time Hedge Fund Portfolio

by: Steven Giardino


There is a vast lack of transparency in the investment world.

Many stock writers want to appear better than they perhaps are, as they are selling a product (themselves).

I feel this misses a key opportunity.

Do you ever wonder how well certain, highly opinionated individual investors or hedge funds actually do? Much of their trades are kept confidential, especially the timing of them - unless they are so large that they must be reported. In some respects this makes sense and is quite defensible, as all of the research that goes into these moves equates with real work (and even expense if one has a team or paid consultants), and simply divulging the outcome of all of these hours of labor is like doing work for nothing. Putting a "FREE" sign out on your product.

However, the lack of transparency also creates opportunities for manipulating public image on the degree of success of the investor or fund. No one really knows how well or not someone actually is at this. Take for example here on Seeking Alpha. A premium contributor sells services and may have over 10,000 followers. But how well are they really doing? There is a vague list of picks, but no real way to know their real time entry and exits.

So I've decided to create a real-time portfolio here on SA and invite anyone to openly examine it, and critically debate the decisions I make. If they so choose. Over the last six years my average ROI has exceeded 70%, and although I would be hard pressed to prove this (I don't suppose you would just take an Excel spreadsheet as proof?), I can at least from this point forward create a public record of all of my entries and exits. For example, although I recommended NWBO in several articles, my sentiment on that stock drastically changed, even though I did not update this profile with subsequent articles. I even shorted it twice.

I like the idea of this level of transparency, and feel the investment world could use much more of it. We're all human, all make mistakes, have our moments or glory and weakness, of triumph and despair. There is no smooth sailing on any sea. You will unfailingly meet with turbulence eventually.

Providing full transparency is to my mind like browsing a site with useful information without any annoying adds slowing your OS down.

And so without further adieu, the portfolio's positions. We'll call it the slow and steady fund ("SAS"):

SAS Fund:

RUSL - This is the fund's primary position. The ETF's fees are relatively low, and it provides an attractive opportunity to track oil without all the hang ups related to contango. A few other perks are a) if Trump gets into office Russian equities should get a bump, b) sanctions will eventually lift, and when they do that will be another catalyst, and c) the ruble must rebound, also positively affecting Russia equities.

Even though there has been a healthy run up, the ETF still has much value inherent to it. It could get very volatile, but within 2 years I believe it will trade north of $100. And that could happen much sooner than later.

Entry: $68.04/share

Concentration: 45% of fund

ACHN - I've written a couple articles on them already, and have only maintained my bullish stance. HCV data due out very soon from JNJ partnership, and CFD inhibitor (ACH-4471) studies beginning Q4 in PNH patients, and by Q1 in C3G patients. I believe ACHN is the next ALXN in the making. And that upon both data sets being positive, buyout speculation will revamp. I also see JNJ as a likely suitor, as they already own a substantial % of ACHN (largest holder), will owe some $900mm in milestones in under 3 years, and will have to cough up some 20%+ in royalties every year on HCV sales. Logically, it only makes sense for JNJ to spend the extra cash (and they have the largest stockpile in all of pharma) and buy ACHN outright. Of course the deal will not happen until an appropriate valuation comes about. Or at least close enough to it. So we need 4471 data in PNH and C3G patients at least first.

Combine the above with a massive cash position ($420mm) and low relative burn rate ($14mm/Q), ensured $900mm in milestones to come, and low relative MC ($1.2B) and we have what I would consider a safe entry with massive upside potential. A rare combination. Hence the very high weighting in a speculative venture.

Entry: $8.99/share

Concentration: 16% of fund

CYTR - See my last article for my rationale here, and also some interesting dialogue in the comments section.

Entry: $0.60

Concentration: 7% of fund

AMRN - I've engaged in quite a bit of debate recently over this stock and its REDUCE-IT study, which I think will fail to meet its primary MACE endpoint. You can find some of this dialogue if interested here.

In short, although I do think omega 3s (n-3s) are beneficial for one's health, I do not think concentrated doses of EPA in subjects at moderate to high risk of CVD, or with CVD, will benefit significantly from taking them over 2 - 6 years (the length of time patients have been on study). For several reasons, such as:

a) DHA is perhaps more beneficial than EPA in reducing CVD risk but is eliminated from the regimen,

b) DHA is prevalent in fish, and subjects told they are at risk of CVD or have CVD will be told to consume more fish; DHA and EPA are more readily absorbed from fish than they are from fish oil supplements (9x the DHA and 2x the EPA absorption); I believe this will confound whatever benefit there is as both groups will be eating more fish,

c) past meta-analyses that showed good relative risk reduction ("RRR") from n-3 supplementation were in populations that either were not on aspirin regimens and/or statin medication; I believe these confound the positive effects from n-3 use, in that they also target the same risk-reducing mechanisms n-3s do; what happens is that instead of lowering risk even more with all of them combined, there is a muted effect with adding n-3s on top of the others,

d) recent meta-analyses show no beneficial effect of taking n-3s at reducing MACE, leading to an actual medical practice changer, as well as this randomized study, and

e) the only evidence of RRR is from subgroup analyses, which I think are confounded, and which are concurrent with abysmally low absolute risk reductions ("ARR"). For example, in one subgroup in the JELIS study from 957 subject, 22 had a MACE in control vs 10 having a MACE on study drug. Thus they state there was a 53% RRR. Although true, those data are hardly mature (just 32 events from a group of 957) and the ARR is only 1.3%. That would never be taken seriously by regulators like FDA, and for good reason. By contrast, every ITT analysis (every single one) from studies of any substantial size testing n-3s showed no significant difference in RRR between groups taking n-3s compared with non.

And even in the JELIS study itself there are many examples of "failure" in subgroups:

Patients with 3 risk factors showed 2% vs 1.5% having a MACE, with 25% RRR, but just 0.5% ARR. The events were 46 from 2324 subjects in control vs 34/2239 in EPA group. That makes it a completely irrelevant RRR.

Patients with 4 risk factors showed just 6% RRR and 0.15% (!) ARR. 2.5% in control vs 2.35% in EPA group. Which is 30/1205 in control vs 29/1228 in EPA group. Which flea has longer legs?

It's all illusory. Where is the efficacy? It's not there.

You just need to do more to curb the deleterious effects of CVD than popping EPA pills for 2 - 6 years. Especially when control group and rx group are eating more fish than ever. Control is literally getting lots of active "drug" in the process.

So, shorting AMRN at $3.19 (as of 8/9/16). They also have two interim analyses, both making for good short trades, and the first of these two coming up very soon.

Entry: $3.19 (short)

Concentration: 5% of fund

ARWR - I believe the time is right, now. Viable player in Hep-B space, with a compelling looking candidate from all angles. Potential buyout candidate in time.

Entry: $5.90

Concentration: 4% of fund

LNG - Longer term buy and hold, planning on moving a higher % into this play with profits from the others. Or with cash on dips.

Entry: $42.96

Concentration: 3% of fund

Cash - Well, cash is often king, and you must have "dry powder" to take advantage of any short-to-medium term opportunities that present themselves, as well as any opps to lower cost basis.

Concentration: 20%

Would very much like to short GILD again, and see that stock as finding $50, or possibly even lower, someday - but the technicals don't look right to me for an entry here. Will be watching closely. Briefly, I feel their extreme concentration in HCV and HIV, which has helped them up til now, will begin to sorely hurt them, exacerbated by their insistence to buy their own depreciating equity. Monopolies rarely exist for very long, and an investment in GILD is an investment in the hope that their monopolies continue another 10+ years. I see that as impossible. There are already better therapies in development than what GILD has in development in HCV in particular, by my estimation. It won't be another V-Pak vs Harvoni outing - it will be much worse for GILD than that. They may only end up with a sliver of the HCV market in 3 years. HIV pipeline similar, but less pronounced and slower. And GILD is just not diversified. Without HIV and HCV pipe, they look like a collection of a few small cap bios.

Given $1mm - $100mm of AUM right this moment, the above is the exact manner in which I would break it down. Given $100K, however, I would probably just put it into ACHN call options (50%), and CYTR shares (30%) and the rest into RUSL (20%). When one significantly profits I would divvy those profits into the other two. And so why not? Let's keep a high-risk, play money portfolio ("PlMP") along side the main:

$100K PlMP:

-ACHN ($8.99 as of 8/9/16), March 2017 $8 strike calls @ $2.80/ea + commission = 174 contracts (approx $50K in current value).

-CYTR ($0.60 as of 8/9/16), 50,000 shares (approx $30K in current value).

-RUSL ($68.04 as of 8/9/16), 293 shares (approx $20K in value)

Talk about diversification!

I'll give updates on my SA instablog the same day any trade happens, and will provide quarterly updates in premium articles on both the SAS and PlMP fund's overall performance.

Cheers and good trading.

Disclosure: I am/we are long ACHN, RUSL, CYTR, ARWR, LNG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: ...and short AMRN.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.