Specialist Fund Cycle Helps Improve Biotech Capital Market

(Credit: Laura Cavanaugh) The dynamic of fund flows is reversible. It is just simply stated as, when the selling pressure softens the market, the fund flows are negative. Likewise with,when more demand for equity exists, the net fund flows are positive. However, the dynamics of the fund flows between Healthcare/Biotech and NASDAQ are quite not seen as real bull market.Specialist Fund Cycle Helps Improve Biotech Capital Market
October 18
6:00 AM 2016

In the equity capital markets, fund flows between sectors are crucially important dynamic. More demand for equity exists and stock price movement bias upwards, when net fund flows are positive. It goes the other way around, when the selling pressure softens markets, fund flows are negative.

Of the last five years, during the bull market, the dynamics of the fund flow, indeed have been major players. Raymond James shared his chart with its interpretation. It shows five years of fund flows in and out of Healthcare/Biotech and shows the comparison with the NASDAQ Biotech Index.

As reported by Lipper/AMG Data Services, which was shared by Mr. James, the data indicates the flow of funds into or out of specialist healthcare/biotech investors. The data comprise 104 funds and about $50B in assets. Thus, it is a good measure of directionally of fund flows in the sector.

Starting from early 2013 up to August 2015, approximately $16.4B has flowed into these sector-focused funds. There was a flow out of these same funds of $11.9B since August 2015.

From early 2013 through August 2015, about $16.4B has flowed into these sector-focused funds. Since August 2015, $11.9B has flow out of these same funds. These changes of the net flow obviously shape a portfolio managers' overall allocation decisions. Net funds must be deployed into the markets as many institutional managers need to be at or approximately "fully invested" and can't settle on large amounts of cash.

Net fund outflows require cash, thus it needs to be funded via the sale of positions in the portfolio.

However, there are these specialist fund flows even important given how small they are relative to the trillions in assets under management sitting in generalist funds.

Over the last year, the downdraft in the NBI is frequently merited to the flight of generalists out of the sector. For a variety of macro reasons such as drug pricing, biotech went out of favor. Generalist cycled cash out of the sector and into other industries or the sidelines. Investment- conscious individuals never see a real bull market back in biotech until they get the generalist back or so goes the oft-cited market wisdom which is conventional.

Yet this 'blame the generalist' view of the performance of the sector which is wrong, according to some controversial new data from Vice Chairman of Stifel Nicolaus & Co, Peter Reikes, and his colleagues.

Earlier this month, Reikes and his company published an outstanding guest commentary in BioCentury entitled "The Generalist Investor Blame Game."




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