Feb 22, 2017

Paul MacDonald's Top Picks: February 22 2017

BNN Bloomberg

Paul MacDonald , BNN

Paul MacDonald, Chief Investment Officer & Portfolio Manager, Harvest Portfolios Group
Focus: Healthcare Stocks

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MARKET OUTLOOK:

Healthcare sector is a direct beneficiary of one of the only secular, non-cyclical and permanent investment themes: the aging global population.
As wealth increases in developing economies, there is a disproportionate increase in the amount of spending on healthcare - this will likely result in significant increased demand for healthcare products over time.
Technological innovation coupled with regulatory advancements paves the way for catalysts across the healthcare sub-sectors.

The positive sector dynamics over the medium to longer term far outweigh the immediate political noise surrounding U.S. Affordable Care Act. This has resulted in attractive equity valuations. In addition, enhanced relative volatility has resulted in attractive income derived from covered call strategies such as the one used in the Healthcare Leaders Income Fund. Lastly, given the current political leadership, individual stock "tweet" risks have risen, suggesting a diversified approach to the sector is prudent.

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.TO is priced in Canadian dollars and hedges the portfolio's currency exposure while HHLu.TO trades in U.S. dollars and is not currency hedged.

Top Picks:

Merck & Co (MRK.N)

We initiated a position at $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.

Anthem Inc. (ANTM.O)

We re-initiated a position in Anthem in January of 2017 at a cost of $153.

Anthem is a leading health insurer in the U.S in 14 States as a licensee of Blue Cross through its Blue Cross & Blue Shield association. In addition to leading brand recognition, Anthem stands to benefit from significant positive macro tailwinds that are expected to occur over the medium term. We continue to hold approximately 10 per cent weight towards the sub-sector, split between United Health and Anthem.

Celgene Corp. (CELG.O)

We initiated at $112 in January, 2017.

Celgene Corporation is a leading biopharmaceutical company. Celgene focuses on research and development of therapies to treat cancer and inflammatory related diseases. The company has a strong and achievable sales growth profile over the next 2 years driven by organic growth coupled with a deep pipeline of trials that will provide catalysts.

Disclosure	Personal	Family	Portfolio/Fund
ANTM	N	N	Y
MRK	N	N	Y
CELG	N	N	Y

Past Picks: JUNE 22, 2016

UnitedHealth Group (UNH.N)

Then: $137.90
Now: $160.57
Return: +16.44%
TR: +17.44%

Amgen (AMGN.O)

Then: $149.81
Now: $172.61
Return: +15.22%
TR: +17.47%

Merck & Co (MRK.N)

Then: $57.04
Now: $65.29
Return: +14.46%
TR: +16.19%

Total Return Average: +17.03%

Disclosure	Personal	Family	Portfolio/Fund
UNH	N	N	Y
AMGN	N	N	Y
MRK	N	N	Y

Fund Profile

Healthcare Leaders Income Fund (HHL_U.TO)

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. The Fund uses a quantitative screening process for security selection and uses an active and flexible covered call strategy to generate additional income. 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 non-Canadian currency exposure while HHL.U-T trades in US dollars and is not currency hedged. The Fund pays a tax efficient monthly distribution $.0583 (CAD in respect to the HHL-T and USD in respect to HHL.U-T).

Performance as of: January 31, 2017