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Look to long-term growth with Polar Capital Healthcare Opportunities

Polar Capital Healthcare Opportunities invests in areas that could experience growth over the long term
April 23, 2020

The outbreak and spread of the coronavirus has highlighted the need and demand for products provided by healthcare and biotech companies. But this is not just a passing theme: even before the outbreak and long after it is resolved, demand for these areas is likely to grow for reasons including ageing populations in developed countries, and growing populations and wealth in developing countries. 

IC TIP: Buy at 4000p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points

Long-term growth potential

Experienced investment team

Consistent positive returns

Good long-term returns

Bear points

Short-term underperformance

Performance fee

"The increasing need for improved medical provision for an ageing population remains a big long-term trend,” says Gordon Smith, head of fund research at wealth manager Killik & Co. “In that context, life sciences are an important enabler. This is borne out by the global healthcare sector’s downside participation ratio of just 65 per cent relative to the broader market over the past 10 years.”

A good way to get exposure to such companies could be Polar Capital Healthcare Opportunities (IE00B3NLDF60). Mr Smith says that this fund taps into the two types of healthcare companies he looks to get exposure to: those driving innovation by, for example, creating new markets or changing medical practices; and companies transforming to meet changing industry dynamics by use of data and analytics to improve efficiency and medical outcomes.

The fund’s investment team of five seeks six main types of opportunities, including companies in specialist or niche markets overlooked by investors and new technologies. They also have a longer investment horizon, which means they can wait for holdings to grow in value, and they look to exploit geographical and sector valuation anomalies.

The team has more than 120 years of industry experience between them.  It is co-led by Gareth Powell, who set up the Polar Capital healthcare team in 2007, before which he spent eight years at AXA Framlington where he managed AXA Framlington Biotech Fund (GB00B784NS11) between 2004 and 2007. He has a degree in biochemistry.

Co-head Daniel Mahony helped set up Polar Capital’s healthcare team in 2007. Before this he was head of European healthcare research at Morgan Stanley, where he covered the biotechnology, medical technology and healthcare services sectors. He has also covered US biotechnology companies at ING Barings Furman Selz, before which he was a research scientist.

It is not clear who will win the US election in November and there are concerns that whoever does could enact policies that would disintermediate and change large parts of US care infrastructure.

Some areas of the healthcare sector are experiencing reduced demand over the short term as less urgent medical needs are being put on hold. “This will cause knock-on effects for the companies providing the medical technology, services and facilities that enable them,” explains Mr Smith.

Single-sector funds are higher risk because they rely on the fortunes of one area and, unlike broad regional or global funds, cannot move away from the sector they focus on if it is in difficulty.

Polar Capital Healthcare Opportunities has a performance fee of 10 per cent of any outperformance of its benchmark, MSCI World Health Care index, which it has underperformed over one, three and five years.

However, despite short-term challenges in certain areas and the volatile and high-risk nature of the sector, the long-term fundamentals for the healthcare and biotech sectors remain intact. The fund is also well diversified across various sub-sectors, so if any one area faces headwinds it is not wholly exposed to these and it could move out of them into other areas. 

So if you are looking for a good source of potential investment growth over the long term the areas this fund taps into, and its managers’ record of finding the right ways to get exposure to them and consistently delivering positive returns, mean that Polar Capital Healthcare Opportunities still looks like a good way to achieve this. Buy.

 

Polar Capital Healthcare Opportunities (IE00B3NLDF60)
Price4,000pMean return6.21%
IA sectorSpecialistSharpe ratio0.38
Fund typeOpen-ended investment companyStandard deviation14.30%
Fund size£1.08bn*Ongoing charge1.17%
No of holdings46*Yield0%
Set up date30/11/2007*More detailswww.polarcapital.co.uk
Manager start dateGareth Powell 30 November 2007 
Source: Morningstar as at 21 April 2020, *Polar Capital.

 

Performance
Fund/benchmark1 year total return (%)3 year cumulative total return (%)5 year cumulative total return (%)10 year cumulative total return (%)
Polar Capital Healthcare Opportunities10.3434.5445.72348.93
MSCI World Health Care index25.6544.7365.19302.78
MSCI World index-1.3719.6951.9158.75
Source: FE Analytics as at 20 April 2020

 

Top 10 holdings (%)
Bristol Myers Squibb 5.2
AbbVie5
Novo Nordisk4.8
Sanofi4.2
Horizon Pharma4.1
Bio-Rad Laboratories 4
Fresenius Medical Care 3.5
Baxter International 3.2
Zealand Pharma 3.1
Boston Scientific 3
Source: Polar Capital as at 31 March 2020

 

Sub sector break down (%)
Pharmaceuticals26.1
Biotechnology25.9
Healthcare equipment21.8
Healthcare other 15.5
Life sciences tools & services 6.1
Cash and equivalents4.6
Source: Polar Capital as at 31 March 2020