Polar Capital Global Healthcare (PCGH) announced its annual report for the year ended 30 September 2023. NAV total return was 4.21%, ahead of the benchmark MSCI ACWI Health Care Index which returned 1.19%. Share price total return was 1.92%.
The outperformance was driven by strong stock selection, largely due to the focus on the company’s three key themes namely: rising utilisation, disrupting the delivery of healthcare and consolidation.
The managers noted that the company’s diversification strategy, coupled with its focus on large-capitalisation healthcare companies with robust, medium-term growth outlooks, has helped drive the positive risk/return profile of the underlying assets, relative to the more volatile areas of healthcare. Further, the broad investment remit affords the opportunity to invest in growth areas regardless of the economic, political and regulatory environment. Importantly, the company also has the opportunity to invest in earlier-stage, more innovative and disruptive companies that tend to be lower down the market-capitalisation and liquidity scales. This is a key advantage of the company’s closed ended structure. Regardless of size, subsector or geography, stock selection is central to the process, as the company looks to identify companies where there is a disconnect between valuations and the near and medium-term growth drivers.
Regarding the outlook, the managers added:
“With sentiment weak, and exchange-traded fund (ETF) outflows pointing to diminished appetite for the healthcare sector, the classic contrarian indicators are pointing to a more constructive stance. More importantly, healthcare’s fundamentals remain strong, as illustrated by the delivery of ground-breaking medical breakthroughs, a material pickup in utilisation and patient volumes plus much-needed progress in shifting the site of care out of inpatient hospital settings and in to lower-cost, more efficient outpatient settings such as surgery day centres and ASCs.
“As we look forward to the next financial year, there is much to engage and excite. The introduction of highly effective weight-loss medications has created huge amounts of interest, and is driving significant dispersions in returns for the so-called GLP-1 winners (the drug developers, device manufacturers and distributors) versus the GLP-1 losers (medical device companies with exposure to areas such as sleep apnoea, diabetes and orthopaedics). However, once the market has all the relevant clinical data and the euphoria dies down, there will likely be a wide range of interesting investment opportunities driven by the recent dislocation.
“The adoption of AI platforms machine and ML software could revolutionise select diagnostic procedures, improving clinician workflow and driving superior outcomes for patients. In a highly complex and data-intensive industry, AI and ML are also being used to drive efficiencies for healthcare systems in areas such as revenue collection, patient scheduling and insurance claims. Emerging markets, especially China, are another area of interest which could see a renaissance in the coming months and years as the healthcare system finds the right balance between cost control, compliance and attracting innovative, best-in-class therapies, devices and capital equipment.
“In conclusion, the healthcare sector is heavily out of favour but attractively valued, is delivering high levels of innovation and has consistently shown the ability to deliver strong revenue and earnings growth, regardless of the economic, political and regulatory environment. It is these characteristics that fuel our optimism for the year ahead.”
PCGH : Polar Capital Global Health outperforms despite volatility.