A guide to the Polar Capital Global Healthcare Trust

Please note, the interview for this article took place on 14 July 2025

Despite a few individual stocks bucking the trend, the past three years have been a challenging period for healthcare – with the sector underperforming the wider market. This reached a pivotal point in the second quarter of this year when the healthcare sector in the US produced the worst relative return versus the S&P 500 of any previous quarter in history*.

We’ve only seen falls like these on two previous occasions in the past three decades, notably in early 2003 following the bursting of the tech bubble, and in 2015-16, which was driven by political concerns and pricing pressures. Both periods were quickly followed by a strong bull run for healthcare stocks. So, with sentiment incredibly poor and the healthcare sector very attractively valued – could now be a good time to invest in a sector with incredibly strong tailwinds?

The Polar Capital Global Healthcare Trust (PCGH) invests in healthcare stocks from around the globe. These companies will predominantly come from four sub-sectors: pharmaceuticals, biotechnology, medical technology and healthcare services.

PCGH is a modified version of a previous mandate run 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 portfolio is split into two segments: growth and innovation with a circa 90/10 split.

PCGH is run by Gareth Powell and James Douglas. Despite the past 12 months being a particularly challenging period of performance (PCGH is down 12% on both a share price and NAV perspective), long-term outperformance has been excellent – over the past 10 years the share price has risen 119% (120.3% NAV total return), comfortably outperforming the AIC Biotechnology and Healthcare sector on both metrics over the same period (55.4% share price and 77.6% on an NAV basis)**.

Investment Process

As mentioned, 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. These innovation companies would include new drugs and surgical treatments but also transformation in the management and delivery of healthcare.

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 (most notably AI) 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.

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.

The trust can hold a maximum of 65 investments across both the growth and innovation pots. PCGH is attractively priced with the second lowest ongoing charge in the AIC Biotech and Healthcare sector (0.88%)**, although it does have a 10% performance over a financial hurdle.

Why now for this portfolio?

• Excellent long-term track record.
• Despite certain sub-sectors remaining hampered by US policy overhang – the fundamentals across the healthcare industry remain strong.
• Valuations (price to earnings) show the healthcare sector is at a c.20% discount – which is attractive on a relative and absolute basis.
• New product pipelines remain strong across the likes of medical devices and pharmaceuticals.
• Long-term tailwinds remain in place (demographics, rise of the middle-class, growing demand from emerging markets).
• Large-cap healthcare has a track record of superior growth to global equities (7.2% vs. 6% earnings compound annual growth rate)*.

Manager’s View

“Performance for healthcare has been rubbish. It has been driven by policy overhangs, but fundamentally there is some good stuff going on and the sector is in a good place. Valuations are now at levels where we’ve seen previous lows while multiples have continued to see good performance.”

Historically known for its defensive characteristics, healthcare has endured plenty of challenges in the past three years. As mentioned, the sector has underperformed the wider market consistently, with the second quarter of this year marking the widest relative return versus the S&P 500 in history.

Co-manager Gareth Powell says prior to the re-appearance of Donald Trump on the US political scene, it was resilience of economic growth, particularly in the US, which hampered healthcare – with a number of surprises on the upside.

It seems so obvious to say, the Trump administration has created significant uncertainty and unwanted volatility during its first few months in office. In healthcare, the actions of the administration and the DOGE have already reverberated through several federal agencies. Drastic staff cuts have begun at the HHS (The U.S. Department of Health and Human Services), with the move being part of RFK’s strategy to shrink and reshape the nation’s health agencies. From a business perspective, layoffs at health agencies have hampered development-stage biotech; while potential imposed tariffs of 200% or more have raised concerns about future biopharma earnings.

Powell says the market “freaked out” about the RFK Jr appointment news at the back end of 2024, only for the healthcare sector to produce strong returns in the first quarter of this year, as its defensive characteristics counteracted concerns over Trump’s policies

He says: “Trump then announced his pharma-specific tariffs and favoured nation pricing and that caused pharma to suffer in the second quarter of this year. However, we’ve had these relative drawdowns before in the early 1990s and 2009-2011, both of which saw a strong recovery. This event has been worse in terms of drawdown and sentiment is terrible. Rolling five-year returns are bottom-decile but that has also historically been a point of stabilisation and improvement.”

Despite the challenges, the overarching theme is one of optimism. The team believe healthcare stocks are attractively priced and that despite policy overhang we could have already reached “peak fear”, with the team citing tailwinds like new product launches and long-term drivers such as consolidation, prevention and growth in demand from emerging markets.

At circa 20%, price-to-earnings indicate the healthcare sector is at an attractive discount on a relative and absolute basis.

Powell says it is hard to ignore US politics given the exposure PCGH has to mega-caps, with the US market most affected by these overhangs. However, he says there remain significant opportunities on a global scale, while other areas like healthcare equipment, healthcare supplies and medical devices do not have the same overhang risks.

He says: “At some point, these overhangs will lift. My view is the multiples have come down on relevant healthcare stocks which were impacted by these challenges. What the market is trying to get clarity on is what happens to earnings forecasts – and this uncertainty is holding stocks back. If these overhangs are lifted with no impact, these companies will rise quickly. If there’s some hit to earnings per share, adjustments will be made and at some point those earnings revisions will bottom out and will be good to go again.”

Portfolio structure

Underweight US and multi-cap exposure

PCGH has a meaningful exposure to small and mid-caps, accounting for just under 30% of the trust (28.7%). Powell says many of the opportunities they are finding currently sit in the mid-cap bracket ($5-10bn). The trust is also underweight the US (47.2%) versus its benchmark, with Denmark, Netherlands, Belgium and India some of the significant overweights versus the sector***.

Sector exposure

Pharmaceuticals (26.7%) make up the largest individual sector position in the trust, however it should be noted this is a relative underweight to the benchmark (-14.7%), because of concerns around policy overhangs. Powell says they have diversified exposure to the sector, focusing on product cycles and product growth.

Two of those growth stories are AstraZeneca and Eli Lily, the two largest positions in the portfolio, with Powell citing top-line growth and pipeline strength. Another position they own is Sandoz, a global pharmaceutical company and a major player in generic and biosimilar medicines. Powell says the story they are excited about within generics is the copy of biotech products (biosimilars). For clarity, generics are small molecule drugs made from chemicals with simple structures. Biosimilars are more complex and come from living sources.

GLPs clearly play an important part in the sector and in addition to Eli Lily, the team also have a position in Zealand Pharma and Novo Nordisk. The Zealand position has been cut while Novo is in line with the benchmark.

Biotechnology names include the likes of European business Argenx, which specialises in immunology, with Powell citing a strong pipeline. A relatively new holding comes in the shape of Ascendis Pharma, which has a range of products in development.

Powell points to a number of additions in the equipment and supplies sectors. He says: “The big-cap we’ve added include Abbott Laboratories and Intuitive Surgical as well as a few mid-cap names. Insulet is one example with its Insulin pump for diabetes. It has the Omnipod 5 and Omnipod DASH, which are tubeless, wearable devices that deliver insulin continuously and can be integrated with continuous glucose monitors (CGMs) for automated insulin delivery.”

The innovation pot (sub $5bn) currently has five stocks, accounting for 8% of the trust. These include NeuroPace, which offers a medical device for severe epilepsy. Powell says it is a company which has grown quickly but still sits at the early stage of its lifecycle, with rapid sales growth and increased penetration for different types of epilepsy.

Within the biotech space they hold Merus, which has a product for head and neck cancer. “They are in late stage trials, with promising mid-stage data reported on various measures. Their drug differs as it has two targets (head and neck cancer) with a single molecule. There is also the potential for it to help colorectal cancer as well,” Powell adds.

Another is Avidity Biosciences, which focuses on muscular diseases, like muscular dystrophy. Powell says the unique attraction of this company is that they have advanced three products at a rapid speed to meet an unmet need. There is the potential for the company to release all three products in the next couple of years.

The quintet of innovators is rounded off by a Japanese healthcare IT company and an Irish healthcare service business.

Portfolio activity

At a stock level, some of the recent portfolio attributors have included Fresenius SE, which provides products and services for dialysis in hospitals, as well outpatient medical care. The team believe it is still a turnaround story, with Powell saying the stock was almost “left for dead” in valuation terms. This was largely due to its prior stake in Fresenius Medical Care, which had its own significant challenges.

Others included Sandoz and Novartis; the latter is one Powell feels has been a standout in the pharma sector – with no pipeline misses whilst delivering strong numbers. It should be noted that Sandoz was part of Novartis before being spun out of the business as a separate entity in 2023.

Detractors included the likes of United Health. The team do not have broader exposure to health insurers due to concerns over high utilisation in over 65s – who have come back into the system following Covid, creating a significant backlog.

Another on the biotech side is Vaxcyte, which Powell says has done very well until recently, when it reported some mid-stage data the market was concerned with.

He says: “The challenge for the stock is the sentiment around vaccines –  because of RFK Jr – is horrible. We are sticking with them even though it has been tough. We believe there is a strong upside opportunity there.”

Sales and purchases

Recent changes to the portfolio include the addition of Edwards Life Sciences, a healthcare equipment company which Powell says has been out of favour. The team believe it has the potential for a broader revenue growth story with more products across a number of areas. Another is Genlab, which manufactures and sells a range of ovens for industrial and laboratory applications.

Powell says: “It is another company that did incredibly well for an extended period and then has seen the share price move lower as people focused on its lead product and it losing the royalties it gets from patents running out in the not too distant future. It is out of favour but the pipeline is getting through and the company can get back to growth in time.”

Sales included Sanofi and Dexcom, both of which follow strong performance runs, with the team believing opportunities are now readily available in other names.

Performance

Short-term performance has been challenging – although the sector has struggled in general due to the political overhang, which impacts the likes of pharma and biotech, which accounts for more than 50% of the sector. Key drivers of the under-performance for PCGH included exposure to mid and small-cap stocks coupled with stock selection challenges in biotechnology, healthcare facilities and pharmaceuticals.

However, long-term performance remains incredibly strong, highlighting the success of the process. Over the past 10 years the share price has risen 119% (120.3% NAV total return), comfortably outperforming the AIC Biotechnology and Healthcare sector on both metrics over the same period (55.4% share price and 77.6% on an NAV basis)**.

What else do investors need to know?

• 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 NAV at the time of drawdown, when the board believes that gearing will enhance returns to shareholders.
• PCGH currently operates on a slight discount of 3.8%, significantly below the five-year average (7.5%). This perhaps indicates the healthcare sector has been oversold and that the portfolio has held up well in a challenging environment.

Outlook

In a global market that appears fully valued, healthcare is one of the few areas that is out of favour and, due to policy overhang, potentially oversold. The medium and long-term tailwinds are as strong as ever, while the pipeline for new products remains robust. Artificial Intelligence is also likely to play a major role in healthcare in the coming years, creating new care models for patients and improving efficiency across the sector.

The team behind PCGH has proven themselves over the long-term to be able to find existing and new opportunities across the market; we see no reason for this to change. This means the current environment could be an extremely attractive entry point to the healthcare space.

*Source: Polar Capital, August 2025
**Source: AIC, at 3 September 2025

***Source: fund factsheet, 31 July 2025

****Source: FE Analytics, total returns in pounds sterling, to 1 September 2025