Polar Capital Global Healthcare let down by widening discount – Polar Capital Global Healthcare reports that its NAV rose by 19.8% over the year end of September 2018 on a total return basis, ahead of its benchmark, the MSCI ACWI Healthcare Index, which returned 17.2% over the same period. However, a widening in the discount to NAV at which our shares traded meant that the return to shareholders was 13.7%. Total dividends for the current financial year were 2.0p.
details of the AGM are available here
Extract from the manager’s report
“In terms of sub- sector weightings, we maintained overweight positions in managed care and healthcare equipment with an underweight position in pharmaceuticals throughout most of the financial year. This positioning, coupled with good stock selection, were positive contributors to performance relative to the Benchmark. However, both weighting and stock selection within the healthcare services and biotechnology sub-sectors detracted from relative performance in the financial year.
We decreased our weighting in managed care towards the end of the reporting period and have added to our exposure in the large- cap biotechnology sub-sector. At the end of the financial year, our major overweight sub-sectors were biotechnology, life sciences tools and healthcare equipment. The weighting in large-cap biotechnology offsets the significant underweight in pharmaceuticals – companies such as Gilead and Amgen are classified as biotechnology but are more like large pharmaceutical companies, in our view.
Stock selection is an important driver of performance.
Over the reporting period, we continued to see a wide dispersion of returns not only across the healthcare sector but also within its sub-sectors. Our stock selection has improved compared to last year, with the absolute performance of the top ten contributors contributing 15.6% to overall returns more than offsetting the -7.7% contribution from the top ten detractors. On an absolute basis, the top three contributors in the portfolio were UnitedHealth, HCA Holdings, and Becton Dickinson with Celgene, Alnylam and Takeda the biggest detractors.
UnitedHealth is the largest US health insurance company and has consistently beaten earnings expectations over the last year. We continue to believe that the revenue opportunity for the company’s Optum division, which is more of a technology company focused on data and analytics, is underappreciated and we think the company looks set for a period of continued growth.
HCA Holdings, a leading hospital chain in the US, delivered a strong performance driven by several factors. The improving US economy had a positive impact on HCA’s volumes, a trend that started to accelerate in the last quarter of 2017. Furthermore, HCA’s strong cash flow and balance sheet allow for acquisition opportunities to further strengthen the company’s leading position in the market.
Becton Dickinson was also a positive contributor to performance. This US medical technology company has consistently delivered on or beaten market expectations. Importantly, this delivery was executed during a period of integration following the completion of the CR Bard acquisition in late 2017.
Celgene delivered a series of negative updates at the beginning of the reporting period. Questions emerged regarding the strength of the company’s intellectual property for its blockbuster drug, Revlimid, a Phase III programme for its inflammatory bowel disease asset, mongersen, was discontinued and management updated its long-term financial targets that highlighted the dependence on its maturing haematology franchise. We sold the stock from the portfolio following the third quarter results.
Alnylam shares have been affected by concerns regarding competition for the lead drug Onpattro. In addition, investors have begun to question management’s ability to fast track the company’s next drug candidate, givosiran, which should be FDA approved in 2019. We think these are short-term concerns and we continue to be constructive on Alnylam. The company is just about to move into the revenue growth phase and we see further pipeline opportunities emanating from the company’s technology platform.
Takeda was the other major disappointment during the reporting period. In March, the company unexpectedly announced that it planned to acquire Shire and, given the size of the transaction, Japanese investors responded very negatively. We have held on to the shares as we think the deal will be highly accretive to earnings and on a two-year view will be transformative for Takeda.”
PCGH :