May 2018 Performance

The strong performance in May can be primarily attributed to the closing of AveXis, which was successfully acquired by Novartis (Ticker: NVS). I played this deal aggressively via common stock and short Puts. This deal took only 37 days to close, which was one of the quickest closings that I can recall. I had a strong conviction in this deal closing and talk of potential antitrust delays provided a nice risk reward opportunity.

The following stocks were also positive contributors in May: Apple (Ticker: AAPL), Alibaba (Ticker: BABA), Mastercard (Ticker: MA), Qiagen (Ticker: QGEN) and Visa (Ticker: V). On the other hand Sanofi (Ticker: SNY) and Constellation Brands (Ticker: STZ) dragged down the May performance. As I have mentioned before, I remain cautious with this market and have a ~ 18% cash position.

I’m really late to the game with Monsanto (Ticker: MON), but I’ve been selling a few of the longer dated Puts. It’s not much of a premium, but it’s pretty much a risk free play at this point. Ideally, Monsanto closes by mid-June in time for the June options expiration (accelerated expiration). The more likely scenario is that these long dated options will expire in July expiration with the assumption that Monsanto closes by the end of June.

That’s about it for the May recap…    

2018 Performance = +14.62% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%

April +2.10%

May +6.25%

April 2018 Performance

April turned out surprisingly well considering the market volatility. The following growth stocks: Mastercard (Ticker: MA), Visa (Ticker: V) and Constellation Brands (Ticker: STZ) contributed to some positive gains for the month. The big gain came from Avexis (Ticker: AVXS), which is being acquired by Novartis (Ticker: NVS) for $218 in cash. I have a good size position in Avexis via common stock and short puts. I did get a bit overboard and the size of the position went past my comfort zone. I plan on tendering the common and letting the short Puts expire. This was one of those situations where I liked the odds and went pretty much all in. I’m hopeful the tender closes on May14th.

I’m hoping to see a few more pharma / biotech tender plays. It’s really been an interesting year as the majority of my gains this year were derived from merger arb plays. My goal is to focus on high probability merger plays and hoping to avoid any Rite-Aid like disasters (which I had the pleasure of experiencing last year). So I’m basically taking things slow and steady…

2018 Performance = +7.89% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%

April +2.10%

AveXis Merger Arb

I initiated a position in AveXis Inc (Ticker: AVXS) via common and short Puts. On April 9th Novartis (Ticker: NVS) announced the acquisition of AveXis for $218 per share in cash via tender offer. The tender offer will officially commence ~ 10 days from the date of the merger agreement. I am currently modeling this deal to close by June 15^th. The reason I like this deal so much is that the risk of this deal breaking due to an adverse event from the clinical trial is pretty much nil. During the conference call an analysts asked a question regarding the impact on the merger from an “unexpected event in one of the clinical trials that questions the safety potential of the product”. Novartis’ Head of Business Development responded with the following: “So in regard to unexpected events, we do not have an out, if there is an event opportunity.” I’ve never seen this before where the acquirer has no outs at all… AveXis is currently trading at $211.14, which still presents an attractive annualized return of ~ 17% (assuming a close by June 15^th).

March 2018 Performance

I managed to come out flat for March with a loss of -0.03%, which is not bad considering the S&P 500 was down ~ 3.1% for this period. I really did not do much in March except for letting the short Puts in Bioverativ and Juno Therapeutics expire. With the closing of Bioverativ and Juno Therapeutics, I do not have any open arb / special situation plays. The market volatility definitely helped to minimize any potential gains from my growth stocks. This market volatility is a traders dream, but unfortunately for me I am an awful trader. I’m staying committed to my game plan by focusing on long term growth stocks and generating additional returns from special situations plays.

Constellation Brands continues to be my largest position comprising ~ 35% of my portfolio. The company reported a nice earnings report yesterday. I was pleasantly surprised by the 42% hike in dividend to $0.74 per share / quarter ($2.96 per year) with a current yield of ~ 1.3%. I continue to believe there is more room to run with this stock as the company starts returning excess cash (share buybacks and dividend increases) to shareholders after completion of their brewery expansions.

Even with this market volatility, I still cannot find any bargains as valuation is still quite elevated. I continue to maintain a good cash cushion and patiently waiting for opportunities to develop…

2018 Performance = +5.65% with the running monthly returns as follows:

January +2.80%

February +2.82%

March -0.03%

February 2018 Performance

February was slow and steady for me as the merger arb plays generated positive returns, which helped to buffer the decline in the growth stocks. The good news is that Buffalo Wild Wings and Ignyta closed in February. Antitrust approvals were received for Bioverativ (Ticker: BIVV) and Juno Therapeutics (Ticker: JUNO). As you know I am very heavy in both of those deals via short Puts and anticipate both deals to close shortly. And finally received the cash from the Casa Ley CVRs.

I continue to tread this market with caution and will focus on merger arb plays as a conservative strategy with this market volatility. Some may view merger arb as a high risk strategy comparing it to picking up pennies in front of a steam roller. The odds are really in your favor when playing the merger arb game as the majority of the deals do close. You can usually identify the hairy deals early on and position those based on your risk tolerance. I do avoid anything that requires CFIUS approval as this agency has become more active in rejecting foreign deals.

I'm just going to sit back and wait for some more good risk / reward arb plays to show up. Just need to be patient…

2018 Performance = +5.70% with the running monthly returns as follows:

January +2.80%

February +2.82%

January 2018 Performance

I can’t believe January has already come and gone… The market strength just amazes me with the S&P 500 gaining ~ 5.5% just in January. My return for January was much more muted with a gain of 2.8%. I continue to have a high cash position of ~ 14% as I remain cautious in this market environment. I just sense that there’s too much optimism out there. In any case, I’m comfortable with my current cash position and will deploy when opportunities arise.

It’s definitely been a busy with all of the M&A activity in the recent weeks. I initiated positions in several arb plays (via Short Puts): Buffalo Wild Wings (Ticker: BWLD), Ignyta (Ticker: RXDX), Bioverativ (Ticker: BIVV) and Juno Therapeutics (Ticker: JUNO). Buffalo Wild Wings and Ignyta are expected to close next week. Bioverativ and Juno Therapeutics should both close by the end of Q1. I really like the risk / reward on both Bioverativ & Juno Therapeutics and have large positions in both.  Bioverativ and Juno Therapeutics are both structured as tender offers, which should lead to a quick close as long as there are no hiccups.

That’s it, just looking forward in seeing Buffalo Wild Wings and Ignyta close next week…

2018 Performance = +2.80% with the running monthly returns as follows:

January +2.80%

Finally... Payout for the Casa Ley CVR