NewEdge AUM: $40 billion
What recent investment allocation changes has your firm made?
Sometimes no decision is the best decision. We made the decision to maintain our quality focus in portfolios in 2023. This was partially due to a continued consciousness about tax sensitivity (we look to build equity portfolios that can compound value through cycles with lower turnover), but also for the expectation of continued market and economic uncertainty. The April-July rally did not favor quality equities; instead, we saw risky, high-beta, low-quality equities lead the market. We chose to maintain our position and add to our highest conviction areas on weakness instead of chasing this rally. As we have been experiencing higher equity volatility in August and September, quality has begun to shine again as the riskier parts of the market reversed the majority of their ephemeral summer gains.
What’s your top contrarian pick at the moment?
Large-cap high-quality biotech equities have been left behind this year (with the biotech sector down 10% year-to-date), but we are finding some great companies in the biopharma space that to us offer attractive valuations, durable earnings growth, and secular growth driven by technological advancements in treatments and therapeutics.
Large-cap biotech companies with strong balance sheets and healthy cash generation are in an advantageous position given the disruption in capital markets. The market for IPOs has been effectively closed for 18 months.
Biotechs with ample capital may have the opportunity to acquire assets and technology at attractive prices from smaller firms that are struggling to raise capital to fund their cash-burning businesses. The group trades at a mid-teens forward PE multiple, a notable discount to the market, capturing the risk and stress currently present in the industry, but also likely understanding the future secular growth potential of this market segment.