Growth-focused Polar Capital Global Healthcare Trust (PCGH) outperformed its benchmark by 6.1% in the year to September 2021, as the large cap healthcare stocks it looks for swung back into favour.
Whilst the ongoing impact of Covid means the near-term outlook for healthcare and broader markets remains uncertain, co-managers James Douglas and Gareth Powell are convinced the healthcare industry ‘will continue to find innovative solutions, will continue to work on improving access to care and will look to drive efficiencies across the healthcare continuum’.
If the industry is successful in these endeavours, the managers insist ‘an optimistic stance about the medium-term prospects for the sector is the right one’.
HEALTHY RETURNS
Polar Capital Global Healthcare delivered a very healthy net asset value total return of 19.5% last year, comfortably beating the 13.4% return from the MSCI All Country World Index/Healthcare total return benchmark.
The second half showed an especially strong period of relative performance as mid to larger cap stocks moved higher.
Shares in the trust, which invests across the healthcare spectrum and selects stocks with resilient, medium-term growth profiles, have risen by 21% to 295p year-to-date.
Disrupting the delivery of healthcare, outsourcing and prevention are key investment themes for the trust and all three have been accelerated by the pandemic.
PORTFOLIO BOOSTERS
Polar Capital Global Healthcare has holdings in names such as Johnson & Johnson, Sanofi and AstraZeneca (AZN).
However, last year’s top positive performance contributors included the likes of Biohaven Pharmaceutical, which performed strongly thanks to consensus-beating revenues for migraine drug, Nurtec ODT, and life sciences tools and services company Avantor, which was bid up on forecast upgrades and the well-received acquisition of MasterFlex, which took Avantor into the fast-growing bioprocessing market.
Syneos Health, which runs a contract research organisation, saw an upsurge in demand due to the need to develop Covid-19 pharmaceuticals and vaccines, while medical technology name Hill-Rom provided a portfolio boost after receiving a premium-priced bid from Baxter International just before the trust’s year-end.
The biggest detractor to performance was not owning mRNA technology-based Covid vaccine maker Moderna, a decision ‘driven by what we perceived to be an excessive valuation relative to the opportunity set ahead for the company’, according to Douglas and Powell.
LOOK TO THE FUTURE NOW
Douglas and Powell argue now could be an interesting time for investors to put money to work in the sector, arguing the healthcare industry’s fundamentals are in ‘rude health, with many sub-sectors having even stronger foundations now than before the Covid-19 pandemic’.
The managers also stress the healthcare patch remains ‘under-owned and underappreciated, with allocations to the sector near decade-lows’, while relative and absolute valuations in the US are ‘attractive and supportive, respectively’.
