Monthly Commentary
April 2017

The healthcare sector performed in line with global stock markets in April.   For April, the NAV for the Trust decreased by 2.6%, which was behind the 1.6% decline reported for the benchmark (Morgan Stanley Global Healthcare Index). Medical devices and managed care were the best sub-sectors, while pharmaceutical stocks were relative under-performers – the NYSE Pharmaceutical Index declined by 2.6% during the quarter.

The Republican Party leadership continued in its efforts to present its healthcare bill, the American Healthcare Act (AHCA), to the House of Representatives that would “repeal and replace” the Affordable Care Act. The House voted in favour of the AHCA, in early May, by a narrow margin.  However, the progression of this bill through the Senate is likely to be another uphill struggle and may require significant changes if it is to become law. President Trump continues to signal his support for the AHCA but the process is holding up his other key initiatives – namely tax reform and infrastructure spending.

M&A activity picked up again in April with two major deals – Becton Dickinson announced its plan to acquire CR Bard and Fresenius SE announced that it would purchase Akorn and the biosimilar division of Merck KGaA.  This type of M&A activity is consistent with our thesis that large companies need to adapt to ongoing structural change by consolidating and building on key franchises.

In terms of clinical news, the Food and Drug Administration (FDA) rejected Eli Lilly and Incyte’s filing for baricitinib, a new drug candidate for the treatment of rheumatoid arthritis, based on potential safety issues around dosing. This was a surprise, the drug has been recommended for approval in Europe already, and both companies vehemently disagreed with the rejection and we would expect an update on their regulatory strategy soon. 

We made no changes to the income portfolio during the month. In the growth portfolio, we sold the positions in three biotechnology companies – Biomarin, Ultragenyx and Neurocrine.  These positions were replaced by Jazz pharmaceuticals, a speciality pharmaceutical company, and Quotient, a diagnostics company that focuses on the blood screening market.

We think the current situation for healthcare has many similarities with the beginning of the last period of strong performance that began in 2010. By and large, quarterly earnings reports to date have been positive, especially for medical device and managed care companies. The relative valuation of healthcare looks attractive and is close to two standard deviations below the 40-year average. 

Moreover, we are encouraged that earnings revisions for the sector are pointing in the right direction – especially on a relative basis compared to the broader market where revisions are at a level that has only been seen six times in the last 30 years. Lastly, ownership of the sector approached a level last seen in 2010 and is beginning to turn. These factors suggest that flows into the sector could begin to pick up and should support outperformance for healthcare in 2017 and onwards.

Dan Mahony & Gareth Powell

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Statements/Opinions/Views: All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital. This material does not constitute legal or accounting advice; readers should contact their legal and accounting professionals for such information. All sources are Polar Capital unless otherwise stated.

Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein. 

Holdings:  Portfolio data is “as at” the date indicated and should not be relied upon as a complete or current listing of the holdings (or top holdings) of the Company. The holdings may represent only a small percentage of the aggregate portfolio holdings, are subject to change without notice, and may not represent current or future portfolio composition. Information on particular holdings may be withheld if it is in the Company’s best interest to do so. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document.  A list of all recommendations made within the immediately preceding 12 months is available upon request.  This document is not a recommendation to purchase or sell any particular security.  It is designed to provide updated information to professional investors to enable them to monitor the Company.

Benchmarks: The following benchmark index is used: Dow Jones World Technology Index (Total Return). This benchmark is generally considered to be representative of the Technology Equity universe. This benchmark is a broad-based index which is used for comparative/illustrative purposes only and has been selected as it is well known and is easily recognizable by investors. Please refer to www.djindexes.com for further information on this index. Comparisons to benchmarks have limitations as benchmarks volatility and other material characteristics that may differ from the Company. Security holdings, industry weightings and asset allocation made for the Company may differ significantly from the benchmark. Accordingly, investment results and volatility of the Company may differ from those of the benchmark. The indices noted in this document are unmanaged, are unavailable for direct investment, and are not subject to management fees, transaction costs or other types of expenses that the Company may incur. The performance of the indices reflects reinvestment of dividends and, where applicable, capital gain distributions. Therefore, investors should carefully consider these limitations and differences when evaluating the comparative benchmark data performance. Information regarding indices is included merely to show general trends in the periods indicated, it is not intended to imply that the Company was similar to the indices in composition or risk.

Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment adviser with the US Securities & Exchange Commission (“SEC”). A list of members is open to inspection at the registered office, 16 Palace Street, London, SW1E 5JD. FCA authorised and regulated Investment Managers are expected to write to investors in funds they manage with details of any side letters they have entered into. The FCA considers a side letter to be an arrangement known to the Investment Manager which can reasonably be expected to provide one investor with more materially favourable rights, than those afforded to other investors. These rights may, for example, include enhanced redemption rights, capacity commitments or the provision of portfolio transparency information which are not generally available. The Company and the Investment Manager are not aware of, or party to, any such arrangement whereby an investor has any preferential redemption rights. However, in exceptional circumstances, such as where an investor seeds a new fund or expresses a wish to invest in the Company over time, certain investors have been or may be provided with portfolio transparency information and/or capacity commitments which are not generally available. Investors who have any questions concerning side letters or related arrangements should contact the Polar Capital Desk at the Registrar on 0800 876 6889. The Company is prepared to instruct the custodian of the Company, upon request, to make available to investors portfolio custody position balance reports monthly in arrears.

Information Subject to Change: The information contained herein is subject to change, without notice, at the discretion of Polar Capital and Polar Capital does not undertake to revise or update this information in any way.

Forecasts: References to future returns are not promises or estimates of actual returns Polar Capital may achieve. Forecasts contained herein are for illustrative purposes only and does not constitute advice or a recommendation. Forecasts are based upon subjective estimates and assumptions about circumstances and events that have not and may not take place. 

Performance/Investment Process/Risk: Performance is shown net of fees and expenses and includes the reinvestment of dividends and capital gain distributions. Factors affecting the Company’s performance may include changes in market conditions (including currency risk) and interest rates and in response to other economic, political, or financial developments. The Company’s investment policy allows for it to enter into derivatives contracts. Leverage may be generated through the use of such financial instruments and investors must be aware that the use of derivatives may expose the Company to greater risks, including, but not limited to, unanticipated market developments and risks of illiquidity, and is not suitable for all investors. Those in possession of this document must read the Company’s Investment Policy and Annual Report for further information on the use of derivatives.  Past performance is not a guide to or indicative of future results. Future returns are not guaranteed and a loss of principal may occur. Investments are not insured by the FDIC (or any other state or federal agency), or guaranteed by any bank, and may lose value. No investment process or strategy is free of risk and there is no guarantee that the investment process or strategy described herein will be profitable.

Allocations: The strategy allocation percentages set forth in this document are estimates and actual percentages may vary from time-to-time. The types of investments presented herein will not always have the same comparable risks and returns. Please see the private placement memorandum or prospectus for a description of the investment allocations as well as the risks associated therewith. Please note that the Company may elect to invest assets in different investment sectors from those depicted herein, which may entail additional and/or different risks. Performance of the Company is dependent on the Investment Manager’s ability to identify and access appropriate investments, and balance assets to maximize return to the Company while minimizing its risk. The actual investments in the Company may or may not be the same or in the same proportion as those shown herein. 

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Launched in 2010, Polar Capital Global Healthcare Growth & Income Trust plc (“PCGHGIT”) has grown to become a leading European investor with a multi-cycle track record. Managed by a team of dedicated healthcare specialists, the PCGHGIT aims to maximise long-term capital growth by investing in a diversified portfolio of healthcare companies from around the world. The managers’ core belief in rigorous fundamental analysis, and being unconstrained by not following a benchmark, enables PCGHGIT to deliver global equity market outperformance through exposure to a universe of over 3,000 companies.

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