For the first three months of 2024, my PA gained 20.77% while my SMSF gained 18.95%. Over the same period, the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt), gained 5.33%. I again had some unusually good fortune, with most positions performing well and no significant losses. This trend is, of course, not sustainable, and I do not expect such results to continue.
My largest winner during the quarter was Atea Pharmaceuticals (NASDAQ:AVIR). At the end of 2023, Atea was trading at a deep discount to cash and was my largest position. Atea rose from $3.05 to $4.04 during the quarter. I sold about a third of my shares when it briefly traded up to $4.50. As of December 31, Atea had net cash less total liabilities of $538.33MM or $6.40 per share. In Q4, Atea had operating expenses of $46.57MM, which includes $12.16MM of stock-based compensation, most of which is well out of the money. If we ignore the stock-based compensation, and add back interest income, Atea burned about $26.66MM during the quarter, or roughly 32 cents per share. That would suggest that Atea would have cash less total liabilities of approximately $431.7MM at the end of 2024 (or $5.20 per share). Atea's primary focus is on developing an oral antiviral for COVID-19. Their candidate, bemnifosbuvir, is currently in a phase 3 trial with results expected in the second half of 2024. I suspect the market would react favourably to positive trial results. In the event that the trial fails, the company would likely face pressure to wind down its operations and return cash to shareholders. It seems to me that the risk-reward remains favourable, even though the margin of safety is considerably less than when I purchased my shares.
Other contributors during the month were InDex Pharmaceuticals, a Swedish biotechnology company currently evaluating strategic alternatives, CEL Corp and G & M Holdings. The portfolio received a small boost after receiving the liquidation dividend from Aptinyx, and I also made money from participating in the Cummins/Atmus Filtration odd-lot split off transaction. Finally, the portfolio received a boost from USD/AUD appreciation, as the portfolio contains significant USD exposure via US- and HK-listed stocks (as the HKD is pegged to the USD).
As I have a number of special situations that worked out or are due to work out soon, I have a significant amount of cash in the portfolio. At the end of March, my PA had roughly 40% of the portfolio in cash or in positions that will soon be cashed out. My SMSF is a little better, with about 26.9% in cash and cash-equivalent positions.
I have been struggling to find exceptional ideas lately, but I've still been finding some things to do. I am in no rush to deploy the cash, and I have a significant tax bill due in about a year, so it is likely I will keep at least a portion of the portfolio in cash/special situations with a short time frame. Needless to say, if I don't find ideas to put the cash to work, it is likely that the portfolio will underperform should the market continue its upwards trajectory. Conversely, the cash position should help if the market moves down.
The benchmark I use for both portfolios is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt). Due to the cash influx, I've started including my cash balance in my PA results starting January 1, 2024. (This coincides with the large liquidating distribution I received from Aptinyx.) Previously, I did not include any cash balances in my PA results, but I was always nearly fully invested.
August 3, 2017 | March 31, 2024 | Since July 1, 2023 | Since Inception | Annualised | |
G&W Portfolio | 1.0000 | 3.3231 | 48.39% | 232.31% | 19.75% |
Benchmark (SPAX2F0) | 61,250.80 | 120,022.53 | 15.08% | 95.95% | 10.62% |
N.B. The returns for my SMSF are unaudited and are calculated net of all expenses and realised taxes (but not unrealised taxes).
August 4, 2021 | March 31, 2024 | Since July 1, 2023 | Since Inception | Annualised | |
G&W SMSF | 1.0000 | 1.7111 | 49.11% | 71.11% | 22.40% |
Benchmark (SPAX2F0) | 98,123.18 | 120,022.53 | 15.08% | 22.32% | 7.88% |
