Polar Capital Global Healthcare lags benchmark in first half

Polar Capital Global Healthcare says, for the six months to 31 March 2016 it generated a Net Asset Value total return of 0.5% which was behind its benchmark, the MSCI Healthcare Index (total return in Sterling with dividends reinvested) which rose by 5.1% over the same period. The share price fell by 3.7% over the period as the discount to Net Asset Value widened from 3.4% to 6.9%. Polar Capital Global Healthcare paid or declared a total of 1.3p in dividends in respect of the six months ended 31 March 2016 compared to 1.2p for the corresponding period last year.

The statement says the underperformance was caused by adverse stock-specific moves in certain small caps and stock selection in the pharmaceutical sector.

The managers’ report says there was a large dispersion in returns across the pharmaceutical sector during the reporting period. The better performers were more defensive pharmaceutical stocks that are perceived as safe havens. PCGH maintained a large position in Johnson & Johnson throughout the period, which provided a significant positive contribution to performance on an absolute basis. However, it did not own any GlaxoSmithKline at the start of the reporting period although they bought a position in late January. Other positive contributors during the reporting period were Bristol-Myers and Consort Medical.

The largest negative contributors were AstraZeneca, Eli Lilly and Novartis. They continue to believe that the pipeline opportunities at both AstraZeneca and Eli Lilly are under-appreciated. In particular, they think that AstraZeneca’s recently-approved lung cancer treatment, Tagrisso, could exceed expectations this year and so demonstrate that the company can turn its R&D potential into revenue. Novartis’ shares fell due to problems at its Alcon division and, more importantly, a decline in consensus expectations for the peak sales potential of its new heart failure drug, Entresto. While Entresto’s European launch has progressed quite well, possibly ahead of expectations, the initial launch in the U.S. has been disappointing as insurance companies have been slow to provide reimbursement for the drug. They think that expectations on Entresto were probably too high at the beginning of the reporting period and are now too low – the stock looks very cheap at these levels. However, it may take a couple of quarters of solid earnings results for Novartis’ shares to recover.

PCGH : Polar Capital Global Healthcare lags benchmark in first half