Our Fund of the Month for June is Polar Capital Healthcare Opportunities (income)

Healthcare has been thrusted into the limelight in recent months as organisations around the world battle with coronavirus. The investment theme is likely to be a major one for the coming decade and getting the most out of its various industries requires deep knowledge and active management.

Reasons to buy

• A long established fund with a proven track record of producing strong risk-adjusted returns.
• The experienced managers have relevant sector expertise, with the team of 5 sector specialists also having 120 years of combined industry experience.
• A number of structural drivers such as ageing populations, clinical and technology advances and developing market expansion should benefit the healthcare sector.
• Healthcare has both defensive qualities and prospects for growth, stemming from increased innovation - which also helps to lower costs.

Things to be wary of

• The high portfolio concentration may limit diversification, especially as over 50% of the portfolio is invested in Healthcare Equipment and Biotechnology.
• The run up to the 2020 US elections may increase volatility as policy discussions are had, although recent events have highlighted the importance of healthcare.
• The presence of small and medium-sized companies can make it appear slightly more volatile than some of the funds which operate similar mandates.

About the fund

The fund is managed by Gareth Powell, who is co-head of healthcare and has managed the fund since joining Polar Capital in 2007. He is supported by a team comprising of 5 sector specialists and fund managers with over 120 years of combined industry experience. By investing in a globally-diversified portfolio of companies within the healthcare industry the managers aim to preserve capital and achieve long-term capital growth.

Stock selection is generally driven by analysis which considers economic and financial factors, and seeks to identify companies with sustainable cash flow and earnings growth. The managers also look to actively allocate capital to fund innovative companies. This fund has a flexible allocation across the market capitalisation spectrum, albeit with a bias towards larger companies. This area of healthcare provides opportunities to pick the leaders that are adapting or driving change, whilst the small and mid-sized portion lends itself to those companies at the forefront of innovation and growth.

Portfolio positioning and performance

The managers run a relatively concentrated portfolio comprising of between 40-45 holdings. Currently, Healthcare Opportunities is significantly underweight Pharmaceuticals in comparison to the MSCI World Healthcare Index, while also maintaining a large overweight position in Healthcare Equipment and Biotechnology sectors.

The fund has a superb long-term track record, producing annualised returns of around 16% since inception and comfortably outperforming the benchmark MSCI World Healthcare – emphasising the importance of active management in this space. There have been periods where it has underperformed its peers, and it has generally utilised more risk than the average fund in this space - highlighting the importance of investing for the long run. More recently, the fund was certainly not immune from the COVID-19 sell-off, but has since rebounded very well and is up year-to-date.

It is one of the more expensive actively managed strategies in the healthcare space in terms of ongoing charge figure (OCF). However, I believe the premium is justified given the relative outperformance of its peers over the long-term and the wealth of expertise the team exhibit.

Risk Rating: H10

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.