A. Equity investments by their very nature are risky and can cause minor to substantial and even total loss. The Biotech sector is a very volatile sector of the stock market, and the risk of total or substantial loss exists. Significant monthly volatility should be expected.
Security-specific stock risk can be diminished, but not eliminated, through diversification in our portfolio of up to 8 holdings. In addition, like any sector-specific product, we will remain exposed to sector risk, which in our case is the Biotech sector. This means that industry news like a new healthcare plan or a change in any FDA process, which may affect the entire Biotech sector will also consequently affect our entire portfolio. The volatility in Biotech stocks is much higher than the broader market, because of the binary nature of the sector which is affected significantly by the drug approval process. Furthermore, a sector concentrated portfolio of up to 8 holdings will have greater volatility than a widely-diversified Biotech sector index, like the Nasdaq Biotech (IBB), or a broader sector fund with many more securities. So monthly volatility above the sector benchmarks should be expected in the portfolio.
We try to position the portfolio within few of the strongest names. But it would not be surprising to have the portfolio up-or-down 20% to 30%, in times of accentuated market stress and resulting volatility. Also, please remember that this is a very aggressive style of investing and may not be suitable for everyone. If you decide to participate in fast moving stocks like those in our portfolio, consider allocating no more than 25% of your entire risky investment portfolio to this style. This percentage can vary based on your own determination and that of your financial advisor. But the idea is to make a prudent allocation to this very promising and very risky segment. Our back-tested performance history reflects this risk/reward, and more can be learned in the Performance section.