Paul MacDonald, chief investment officer and portfolio manager, Harvest Portfolios Group
Focus: Health care stocks
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MARKET OUTLOOK

Broad structural long term tailwinds for the health care sector are driven by the permanent investment themes of an aging global population, growing wealth in developing economies and by technological innovation.

Recent appreciation in the broader health care sector has been driven by five key factors:

  1. Corporate earnings are coming in better than expected.
  2. Management outlooks are positive and reflected in improved guidance.
  3. Late stage R&D pipelines are delivering results - stemming from years of investment.
  4. M&A has resurfaced in the sector. 
  5. Political rhetoric has been subdued coupled with clarity into potential policy changes.

These factors have resulted in improved sentiment and have made the sector more investable than a year ago. Valuation multiples for the broad health care sector however remain well below the market which we continue to believe will narrow over time.  We continue to advocate a diversified approach to the sector and with enhanced volatility has resulted in attractive income derived from covered call strategies such as the one used in the Healthcare Leaders Income Fund. 

TOP PICKS

MERCK & CO. (MRK.N)
We initiated a position at US$58 over 12 months ago.
Merck & Co is a large cap diversified drug manufacturing company. Merck & Co has a proven ability to generate consistent returns and has offset patent declines due to their deep pipeline of new drugs from acquisitions and organic R&D. Merck & Co has an attractive yield and attractive balance sheet. Of note, Merck has continued to generate positive developments from Keytruda, its leading immuno-oncology therapy. 

ALLERGAN PLC (AGN.N) 
Adding in mid – low US$220’s.
Often referred to as the quintessential “Aging” company, driven by a very strong Aesthetics business driven led by the Botox brand. However what gets lost in that is the diversified product line up of drugs treating multiple indications coupled with a deep and underappreciated pipeline of trials. Very attractive valuation metrics coupled with above industry growth over the near to medium term. 

UNITEDHEALTH GROUP (UNH.N) 
We initiated a position in UnitedHealth Group in July 2015 at a cost of US$122.
UnitedHealth Group is the largest health insurer in the U.S., covering some 70 million lives. In addition to leading brand recognition, United also stands to benefit from significant positive macro tailwinds that are expected to occur over the medium term. It has diversified operations and their acquisition of pharmacy benefits manager Catamaran provides them a unique competitive positioning. We continue to hold approximately 10 per cent weight towards the sub-sector, split between UnitedHealth and Anthem Inc.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
MRK  N N Y
AGN N N Y
UNH N N Y

 
PAST PICKS: FEBRUARY 22, 2017

MERCK & CO (MRK.N)

  • Then: $65.29
  • Now: $65.79
  • Return: 0.76%
  • Total return: 2.98%

ANTHEM (ANTM.N)
We continue to own Anthem in combination with UnitedHealth Group.  Recent pull back provides opportunity for entry.

  • Then: $163.27
  • Now: $189.10
  • Return: 15.82%
  • Total return: 17.10%

CELEGENE (CELG.O)
We continue to see Celgene as one of the best organically positioned large cap biotechs with upside potential from any pipeline success.

  • Then: $119.27
  • Now: $141.74
  • Return: 18.83%
  • Total return: 18.83%

TOTAL AVERAGE RETURN: 12.97%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
MRK  N N Y
ANTM N N Y
CELG N N Y


FUND PROFILE

HEALTHCARE LEADERS INCOME ETF
Our fund, the Healthcare Leaders Income ETF invests in an equally weighted portfolio of 20 large cap healthcare issuers that trade on a North American exchange and have listed options. There are two classes of the ETF that trade on the Toronto Stock Exchange:   HHL-T is priced in Canadian dollars and hedges the portfolio's currency exposure while HHL.U-T trades in US dollars and is not currency hedged.

PERFORMANCES AS OF: AUGUST 31, 2017

1 Month: 0.86% Fund, 0.99% Index*
3 Month: 3.93% Fund, 3.80% Index*
1 Year: 7.68% Fund, 10.77% Index*
2 Year (annualized): 5.92% Fund, 4.70% Index*
Since Inception**: 4.80% Fund. 4.88% Index*

*Index: MSCI Daily TR World Net Health Care in U.S. Dollars
Based on net asset value total return in accordance with NI 81-102.
**Annualized return since December, 2014
 

TOP HOLDINGS AND WEIGHTINGS

Gilead Sciences, Inc. - 5.3%
Bristol-Myers Squibb Company - 5.1%
Anthem Inc. - 5.0%
UnitedHealth Group Inc. - 4.9%
Celgene Corporation - 4.9%
 

WEBSITE: www.harvestportfolios.com