Eden Rahim of Toronto-based Next Edge Capital has had his share of multibagger and grand-slam successes, and is one of the few mutual fund managers who feels comfortable investing in micro-cap biotech names side-by-side with billion-dollar biotech stocks. In this interview with The Life Sciences Report, Rahim describes a group of micro-, small- and mid-cap biotech names possessing powerful growth drivers that could perform even when the overall market is not so hot.
The Life Sciences Report: After China's shares began selling off in early January, investors all over the globe began dumping shares of everything, especially healthcare and biotech. You have managed biotech portfolios since 1994, and you put on hedges so your downside is limited. How did you do during the downturn? Did it take you by surprise?
Eden Rahim: Admittedly, I did not see the intensity of the selling that began in January, compared to when stocks began to slide last August. I was nervous at that time and wrote options against 11 of the fund's largest holdings. I also had a few hundred IBB (iShares Nasdaq Biotechnology Fund [IBB:NASDAQ]) and XLV (Health Care SPDR (ETF) [XLV:NYSE.Arca]) puts on the portfolio. When the market took that first leg down of 30%, the portfolio weathered the storm really well.
Traditionally, January and February have been a favorable season for biotech, so coming into this year I had small hedges in place, and my cash was only around 10% versus close to 20% back in August. This downturn really came as a surprise.
TLSR: What precipitated the selloff?