Lack of biotech hits Mahony’s Polar Capital trust

A lack of exposure to biotechnology stocks has hampered the recent performance of Dan Mahony’s Polar Capital Healthcare Growth and Income investment trust.

Mr Mahony has experience investing in biotech stocks through his open-ended Healthcare Opportunities fund, in which the sector represents more than 19 per cent at present, something that has acted as a tailwind.

But in the manager’s £200m investment trust, there is just a 4.9 per cent weighting to biotech, meaning it lags its peers that generally have a greater exposure to the sector.

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The MSCI AC World Healthcare index has returned 25 per cent in the past year in sterling terms compared to a share price total return of 11.9 per cent for Mr Mahony’s trust, according to data from FE Analytics.

Mr Mahony’s fund, however, has returned 36.6 per cent in the same period, the data provider said.

“Not investing in biotechnology has hindered our [trust’s] performance this year,” Mr Mahony said.

“But investing in the sector does not fit within the mandate of the trust, which is supposed to have a very low risk profile.”

The trust’s low-risk mandate means Mr Mahony maintains two thirds of his exposure within large-cap pharmaceutical names, which some deem as less economically sensitive than other areas of the stockmarket.

However, the manager recently took some profits from major names GlaxoSmithKline and AstraZeneca.

Mr Mahony said the AstraZeneca story reflects what has happened to the healthcare sector “in a nutshell”. It was out of favour for the past two years, before rising substantially this year on rumours of a takeover by Pfizer.

While the trust still maintains 6 per cent of its portfolio in the stock, making it the fourth highest holding, the manager took some profits in September and October.

But GlaxoSmithKline now makes up just 3.3 per cent of the portfolio as Mr Mahony took profits at the beginning of the year and sold more of it in recent weeks.

“Healthcare is still a good story, but since the launch of the trust the leaders of the sector have changed,” the manager said.

Mr Mahony has rotated some of the profits from these sales into the world’s fourth largest medical device company Medtronic and chemical and pharmaceutical company Merck KGaA.

The manager said both companies had been active on the corporate side, with Medtronic set to merge with Covidien and Merck soon to acquire Sigma-Aldrich after striking a deal in September for 37 per cent above Sigma’s closing price.

The manager said another of his favoured stocks, Roche, which makes up 8 per cent of his trust’s portfolio, is one he is giving the “benefit of the doubt” to, given it had not revealed future plans.

Since launch on June 10, the trust has delivered a share price total return of 74.3 per cent, which is below the 108.6 per cent return by the MSCI AC World Healthcare index, according to data from FE Analytics.