Morning Note: Market news and an update from Polar Cap Healthcare.

Market News

In the US last week, the S&P finished lower for the week after three consecutive weekly gains, while Nasdaq was up for the fourth straight week. Traders are looking to later in the week when the Federal Reserve is expected to lower rates by 25 basis points and pare back the number of cuts it anticipates next year, according to a survey of economists. Gold slipped to $2,658 an ounce, while Bitcoin hit another high of $105k.

In Asia this morning, equities dropped – Nikkei 225 (-0.03%); Hang Seng (-1.05%); Shanghai Composite (-0.16%) – after disappointing retail sales data in China showed the world’s second-biggest economy is still struggling to recover. Fixed-asset investment also missed, while industrial output and the jobless rate was in line.

The FTSE 100 is currently trading 0.2% lower at 8,288, while Sterling buys $1.2632 and €1.2020. Rightmove reported that the average asking price fell for the second month in a row in December, going from £366,592 to £360,197, a drop of 1.7%. London homeowners are rushing to sell before the stamp duty increase with Rightmove warning of a property cliff edge once deadline passes.

Brent Crude moved up to $74 a barrel as US sanctions are reported to be disrupting Iranian oil flows to China.

Investment Fund News

Polar Capital Global Healthcare Trust has this morning released results for the financial year to 30 September 2024. Performance against the benchmark was good, while the discount to NAV narrowed. Within the statement the manager provided a good summary of current trends in the industry and their view on their potential impact on the sector. The shares are listed on the LSE and are little changed this morning.

Polar Capital Global Healthcare Opportunities Fund is a UCITS fund which seeks to generate capital growth by investing in a portfolio of global healthcare stocks involved in pharmaceuticals, medical services, medical devices, and biotechnology.

Healthcare is a defensive sector, fairly immune to the economic cycle. However, it is very diverse, providing the manager with investment opportunities in any given economic, regulatory, or political climate. In the medium term, the manager believes the fundamentals for healthcare remain very strong. Innovation drives the future growth potential of companies, but pressure on healthcare costs to fund new products and initiatives means that access and affordability are increasingly critical if the innovation is to flow through into earnings growth. This theme is expected to drive the sector for the next twelve months, together with continued excitement over the potential applications of technology, especially in Artificial Intelligence and also for opportunities in emerging markets, particularly China, which could benefit from increased economic stimulus.

Against this positive industry backdrop, the manager believes valuations across the sector are compelling.

The £480m portfolio is made up of 30-45 stocks (currently 37), diversified by geography, industry sub-sector, and investment size. The investment profile is fairly conservative, with the portfolio dominated by large-cap, high quality healthcare holdings. There is an allocation of up to 20% in the so-called ‘innovation’ portfolio (currently 7.5%), i.e. those companies expected to drive disruptive change in new drugs, surgical treatments, and healthcare management and delivery. Unlisted companies can account for up to 5% of the portfolio.

The fund is currently positioned in sub-sectors that will benefit from an increase in utilisation and further consolidation in the biotech market. The largest overweights are Zealand Pharma, Swedish Orphan Biovtrum, Intuitive Surgical, and UCB.

Over the year to 30 September 2024, the performance of the healthcare benchmark, whilst delivering positive absolute returns, has lagged the broader (technology influenced) market. However, the company had a positive twelve months, ending the year 5.07% ahead of its benchmark (MSCI ACWI Healthcare Index, Total Return) and returning a NAV per share total return of 14.95%. Despite a relatively difficult year for the investment trust sector in general, the discount narrowed slightly during the year, ending the financial year at 4.82%.

The outperformance was driven by strong stock selection across the entire market-capitalisation range, particularly in biotechnology and pharmaceuticals. For the second year in a row, Zealand Pharma was the highest contributor to overall performance attribution, as investor appetite for companies with exposure to the so-called weight loss drugs, and the potential they offer, continued. The main drag on performance was the above-benchmark exposure to small and mid-cap stocks.

The fund usually employs gearing, although this has fallen from 9% to zero during the year. There is a small dividend yield, 2.4p a share or 0.7%. There is a management fee of 0.75% and a performance fee of 10% over a performance hurdle. The OCR is 0.88%.