Healthcare Investments with Optionality
WELCOME TO MD3 CAPITAL MANAGEMENT
Michael Dauchot, M.D., CFA
Has nearly 25 years of experience as a research analyst and portfolio manager in the healthcare industry. He began as a sell-side healthcare research analyst with Robertson Stephens in 1996, where his primary focus was medical devices. Mike then transitioned to a career on the buy side, where he was a healthcare research analyst and portfolio manager. Dr. Dauchot has experience in both long-only and hedge fund strategies, and has covered medical devices, biotechnology, and pharmaceuticals. Mike became independent in 2018 and formed a healthcare investment consultancy to provide a range of financial services for healthcare companies and investors. Before starting a career in healthcare investments, he was a practicing physician in internal medicine.
MD3 Capital Management’s Healthcare fund primarily invests in domestic biopharmaceutical and medical technology companies. The Fund has a long bias and focuses on derivative strategies to manage downside risk and is largely agnostic to market capitalization. Its benchmark is a weighted blend of three healthcare index-tracked ETF’s: the IHI (40%), XBI (40%), and XLV (20%).
FUND OVERVIEW
Beginning with the outset of Covid-19, the events of the past 4 years have brought forth an extraordinary amount of general market risk. Covid-19 and its mutations were decisively conquered by mRNA vaccines, but the economic impact of pandemic is still being felt in the form of inflation. There was a time when the news from our infectious disease specialists dominated market headlines. Now, the latest economic data and Jerome Powell’s words largely dictate market sentiment. Wayward CPI numbers cause as much volatility and uncertainty as the drifting genetic code of Covid-19 once did.
PERSPECTIVE
To manage both stock-specific and the now heightened macroeconomic risk, MD3 Capital builds option positions around its major holdings, or will have pure derivative positions of the underlying stock. Our most common strategies are collars with equity, calendar calls, straddles, and written calls. In all cases, the use of derivatives is designed to mitigate risk; speculative strategies such as naked calls are avoided. When sound derivative strategies are not available for our investments, the position size will be lower than that of our average holding but will not be less than 0.5% of the portfolio.