Polar Capital Global Healthcare (PCGH) has released its annual results for its financial year ending 30 September 2022 and, over the 12-month period, PCGH returned a NAV total return of 5.59% and share price return of 10.11%. PCGH’s benchmark, the MSCI All Country World/ Healthcare Total Return Index, returned 6.93% over the same period.
PCGH traded on a 5.6% discount as of 30 September 2022, widening from the 6.0% it traded at its prior year end. However, it has narrowed from the 9.5% it traded on at the start of 2022.
PCGH paid two dividends over the financial year, a first interim dividend of 1.00p per share and a second dividend of 1.10p, bringing to total dividend to 2.10p for the finical year, a small increase on the prior year’s.
The board has further improved the ESG credential of PCGH, with this year’s focus being on how ESG has influenced PCGH’s Manager’s decision making, and the methodology used to assess current and potential investee companies. As at 30 September 2022, based on MSCI ESG ratings, the portfolio and the benchmark were both AAA rated.
PCGH performance was driven by strong stock selection across the market-capitalisation spectrum, yet it was offset by the negative allocation effect of having a relative overweight position in small and mid-capitalisation stocks. Distributors, managed care, healthcare services and pharmaceuticals all performed strongly over the period.
On a wider sector-level, pharmaceuticals had a relatively strong year, thanks to their inflationary resilience, although it was a difficult time for healthcare supplies, life sciences tools and services, equipment and facilities subsectors. Within PCGH, healthcare equipment was the biggest positive contributor to performance thanks to strong stock selection. Biotechnology and managed care were also positive. Pharmaceuticals detracted the most due to negative allocation and stock-picking. While PCGH generated strong stock selection in healthcare facilities, it did not offset the negative allocation effect.
Three largest positive positions within PCGH were their investment in Cytokinetics, a biotechnology company focused on developing drugs for cardiovascular and neuromuscular diseases of impaired muscle function, Acadia Healthcare, a provider of behavioural healthcare services, and Molina Healthcare, the managed care organisation. PCGH’s lack of exposure to Meoderna was also a substantial contributor to its relative performance.
Co-managers James Douglas and Gareth Powell comment that: “Against a background of continued global economic challenges, the outlook for the healthcare sector remains robust. The demand for products and services is growing significantly, innovation continues at a rapid pace and valuations are attractive. The positive fundamental investment drivers are currently matched with a macroeconomic backdrop which is extremely supportive for the sector. The healthcare sector has outperformed the broader market over the last 12 months and with the recent healthcare reform update having passed in the US as part of the Inflation Reduction Act, we are anticipating a period of sustained outperformance for the sector.”
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