Polar Capital Healthcare trust rockets to success thanks to strong stock selection
The £487m Polar Capital Healthcare trust performed strongly over the last six months, with the its net asset value rising 16.6 per cent, compared to an index rise of 9.6 per cent.
The trust also performed much better than the previous year, where it grew only 4.2 per cent, thanks to strong stock selection and managing to outperform an already booming healthcare market.
Managing to outperform the index in every region except Japan, the trust’s discount also narrowed from 7.7 per cent to 6.7 per cent, a rarity as investment trusts have increasingly fallen out of fashion.
The trust’s biggest win was its large investment in anti-obesity drug manufacturer Zealand Pharma, which saw its stock price grow 120 per cent throughout the six months.
“The stock jumped in February when partner Boehringer Ingelheim released positive phase two data for key development drug survodutide for a disease called metabolic dysfunction-associated steatohepatitis, thus increasing the drug’s commercial potential and derisking the program at the same time,” explained managers James Douglas and Gareth Powell.
The trust initially saw a stumble after medical device companies that specialise in products for diabetes sold off sharply due to the rise of weight-loss drugs like Ozempic.
However, its holding Dexcom, which makes glucose monitors, later rebounded due to consistently beating consensus estimates in its quarterly earnings, being the second strongest contributor to performance during the six months.
Other wins for the trust included UCB, ICON and Cytokinetics.
The trust’s decision not to invest in Pfizer also allowed it to outperform the index, due to dwindling demand for coronavirus therapeutics and vaccines that pushed down the company’s 2024 earnings guidance to half of what analysts had expected.
The group also had setbacks in its pipeline development, the most notable example being the discontinuation of the programme for its twice-daily oral weight-loss pill, danuglipron, after results from a mid-stage trial showed a high rate of side-effects and discontinuations.
Avoiding Unitedhealth Group, the largest managed care organisation in the US, was another win for the trust versus the market, as high healthcare usage continued to push up costs for the company.
The trust’s portfolio continued to drift towards mega cap companies, or those worth over $100bn, with 37.3 per cent of the portfolio now being made up of them, up from 34.5 per cent in September.
In total, the trust’s net asset value has grown 95.3 per cent since it restructured in June 2017, compared to an index growth of 81.2 per cent.
The strong growth in the trust also caused its performance fee to kick in, however, with ongoing charges including the fee rising from 0.87 per cent to 1.05 per cent in the last six months.