Co-manager Dan Mahony moved to protect the portfolio as markets dropped from August 2015 onwards, shifting to a 16 per cent cash holding and moving away from small caps. But the manager is now looking to rebuild positions in the belief some sectors have bottomed out.
The $1bn (£700m) fund, co-managed with Gareth Powell, invests in healthcare companies globally and across all cap sizes. Mr Mahony said biotech firms further along the drug manufacturing cycle would be a particular area of focus.
Mr Mahony said: “Last year was a year of two halves. In the second half we had the market selling off and Hillary Clinton talking about drug pricing, which spooked the more generalist investors.
“We ended the year with quite a lot of cash. Through August we also shifted capital out of small caps to large caps. When we get defensive we keep the same 45 positions but reduce the beta in the portfolio.”
Small caps suffered greater losses during the precipitous falls. Over a year, the US small cap Russell 2000 Health Care index fell 9 per cent but the MSCI World Health Care index gained 0.7 per cent, according to FE Analytics.
Mr Mahony said some larger stocks were also now looking interesting – meaning the time to redeploy cash was nearing.
“When the market wants to go down, do not fight it. You just preserve capital and make sure you’re patient and redeploy at the right time. When I look at the multiples and growth on a three-year view, we’re getting to attractive levels on the large caps”, he said.
The manager said the move to increase biotech did not represent a bet on the sector.
“There is a lot of innovation in biotech, you just need to be careful as to how you manage the risks. We tend not to go into early stages and not take clinical data risk.
“[The holdings we will add to] are interesting in different ways. It’s about how quickly they can get drugs to market and start ramping up sales. I do think it’s going to be a stockpickers’ market.”
One firm on his list is Medtronic, a US-based medical device company. Mr Mahony said the firm had committed to $14bn worth of dividends and share buybacks over the next two years.
He also intends to increase a position in Dynavax, a firm which is set to release a new vaccine for Hepatitis B. The firm announced successful results from clinical trials, but this was overshadowed by the market rout.
“We still think that could be a $500m product, but it isn’t showing in the price,” he said.
A third target is Portola, a firm set to release a new anti-blood-clotting agent.
“We think it could be a $300m-$500m drug. It’s a drug every hospital will have to stock just in case,” he added.
The Polar Capital Healthcare Opportunities fund returned 94.6 per cent over three years, compared with 65.8 per cent for the MSCI World Health Care index, according to FE Analytics. Over one year the fund has returned 0.5 per cent, compared with the index’s 0.7 per cent return.
KEY NUMBERS
16%
Percentage allocation to cash in Polar Capital Healthcare fund
25.5%
Percentage allocation to biotech firms
