179. Why COVID has been a genuine catalyst for positive change in the healthcare industry
James Douglas and Gareth Powell, co-managers of the Polar Capital Global Healthcare Investment...
Polar Capital Global Healthcare Trust
Investment trust
Polar Capital Global Healthcare Trust invests in a healthcare stocks from around the globe. These companies will predominantly come from four sub-sectors: pharmaceuticals, biotechnology, medical technology and healthcare services.
Our opinion
This is a unique trust investing in a very specialist part of the stock market. The trust itself is a modified version of a previous mandate ran by the managers, known as Polar Capital Global Healthcare Growth & Income Trust. The reconstruction took place in 2017, with a subtle change in the investment objective widening the investible universe for the managers to include healthcare innovation stocks, which are not normally income-producing.
The managers produced very attractive returns for the shareholders in the trust’s previous guise and we believe their extended investment opportunity should continue to be beneficial for new and existing shareholders.
Trust manager
Gareth Powell joined Polar Capital in 2007 to set up the healthcare team. He started his career in investment management with Framlington in 1999 and became the manager of the Framlington Health fund in 2002. He also helped to launch the Framlington Biotech fund, which he managed from 2004 until his departure. Gareth studied biotechnology at Oxford and, as part of his course, worked at a leading Japanese pharmaceutical company. Gareth has also worked at various academic laboratories, including the Sir William Dunn School of Pathology, The Wolfson Institute for Medical Research and Oxford Business School.
James Douglas became a co-manager for the trust in September 2018. He joined Polar Capital in September 2015 and has 19 years of industry experience. Prior to joining Polar Capital, James worked in equity sales, specialising in global healthcare at Morgan Stanley, RBS and HSBC. James also has equity research experience garnered from his time at UBS, where he worked as an analyst in the European pharmaceutical and biotechnology team. Before moving across to the financial sector, he worked as a consultant for EvaluatePharma. James has a PHD and first class honours degree in Medicinal Chemistry from Newcastle University. He also holds an ACCA diploma in financial management.
Investing in equities is a bit like golf in that every stock move, or indeed golf shot, brings someone somewhere pleasure.
James Douglas PhDTrust manager
Investment board
The board is currently chaired by Lisa Arnold. Lisa has held numerous healthcare roles at the likes of NatWest Markets, UBS Warburg, Commerzbank and Lehman Brothers, in a career which has spanned more than three decades. Lisa is currently a non-executive of PIMCO Europe Ltd and chairs its audit committee. She is also a Trustee Director at a number of pension funds, including the Allied Domecq pension funds.
The other board members are: Neal Ransome, Jeremy Whitley, and Andrew Fleming.
Investment process
The portfolio is split into two segments: growth and innovation with a circa 90/10 split. The growth element is made up of predominantly larger companies, whereas the innovation pot will invest into medium and smaller companies that have the potential for greater growth in the long run. These innovation companies are typically disrupters of conventional medical practices, mainly driven by structural transformation and employment of technology, to deliver the holy grail of better healthcare for less money.
The managers focus on firms with a business model that will enable them to achieve an innovator status in the industry, as well as large blue-chip companies which are proactive and driving change. Progress in information technology has improved diagnostic and monitoring, measuring value and effectiveness of treatment, which leads to a better understanding of diseases and, in turn, new products and new diagnostics. The managers actively seek out companies in these areas.
The types of stocks in which the managers tend to invest are likely to produce little or no yield. As a result, any income generated from this trust is very much a by-product of the process and is not part of the investment objective.
ESG
ESG - Integrated
Being a specialist fund investing in a specific industry, ESG analysis is a lot more granular with this fund, but it remains an important part of the risk assessment and due diligence process. Considering the level of regulation in the industry, Gareth and James have a particular focus on governance, and how much importance management teams place on adhering to these rules. Meeting and engaging with these teams is an essential part of the investment journey and ESG considerations will be a part of this discussion. The industry also has a naturally large social impact, looking to find improvements in both treatments and care to help people live longer and better lives. The managers engage with firms with poor overall ratings to try and improve practices. Divestment is an option should this approach not be successful, though Gareth and James prefer to take a productive improvement approach.
Risk
This is a specialist trust investing mainly in large blue-chip healthcare-related stocks, which tend to be less risky than their medium and smaller peers. However, the managers can and do invest part of the portfolio in other mid and small cap stocks, in particular biotech companies at the cutting edge of healthcare. By their nature, these stocks can be more volatile.
The overall risk of the portfolio is mitigated by ensuring a diversified portfolio of stocks by factors such as geography, industry sub-sector and investment size. This portfolio is likely to be subject to more volatility than the equity market as a whole. The trust can hold a maximum of 65 investments across both the growth and innovation pots.
Gearing
The trust does not gear up in the conventional sense and, with the exception of structural gearing through the issue of Zero Dividend Preference shares, will not utilise borrowings for investment purposes. The trust may borrow up to 15% of its Net Asset Value at the time of drawdown, when the Board believes that gearing will enhance returns to shareholders.
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