Jun 22, 2016

Paul MacDonald's Top Picks: June 22, 2016

MIchael Chu , BNN Bloomberg

Paul MacDonald , BNN

Paul MacDonald, Chief Investment Officer and Portfolio Manager, Harvest Portfolios Group

Focus: Large Cap Healthcare Stocks

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MARKET OUTLOOK:

1. Healthcare sector is a direct beneficiary of one of the only secular, non-cyclical and permanent investment themes – The global aging population.

2. 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.

3. 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 healthcare in the U.S. election discussions. In addition, recent short term macro headwinds from U.K., and U.S. fed rate policy rhetoric have caused enhanced volatility. This has resulted in attractive entry valuations and served to enhance income from covered call strategies such as the one used in the Healthcare Leaders Income Fund.

Our fund, the Healthcare Leaders Income Fund ( HHL_u.T) invests in an equally weighted portfolio of large cap healthcare issuers that trade on a North American exchange and have listed options.

Top Picks:

UnitedHealth Group (UNH.N)

We initiated a position in United Health Group in July of 2015 @ cost of $122.

United Health Group is the largest health insurer in the U.S., covering some 70 million lives. United Health Group is a direct beneficiary of affordable care act and more recently benefits from a dislocation in M&A market with its rivals. It has diversified operations and their acquisition of pharmacy benefits manager Catamaran provides them a unique competitive positioning.

Merck & Co (MRK.N)

We initiated a position at $58.53 over 12 months ago and recently added in March @ $52.

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 with modest growth and we see potential upside surprises from key blockbuster drugs over the coming 12 months.

Amgen (AMGN.O)

We initiated at $160 over 12 months ago and recently added to the position in March @ $143.

Amgen is one of the largest biotechnology companies in the world. Amgen has a proven ability to extract value through acquiring late stage drugs coupled with a deep organic pipeline. Amgen has significant biotech and biosimilar exposure without the binary outcomes from many smaller biotech companies have.

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

Fund Profile

Healthcare Leaders Income Fund (HHL_U.TO)

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. The Fund pays a tax efficient monthly distribution (current annual yield of 8.2 per cent as at June 20, 2016), is currency hedged to the CAD and has no leverage.

Performance as of May 31, 2016

1 month: Fund 1.75%, Index* 1.40%

3 months: Fund 9.77%, Index*7.30%

6 months: Fund 1.11%, Index*-2.39%

1 year: Fund -2.63, Index*-6.46%

Since Inception: Fund 2.49, Index* 1.13%

Index: MSCI Daily TR World Net Health Care in US dollars

Based on net asset value total return in accordance with NI 81-102.

*Annualized return since December, 2014

Fund is equally weighted therefore top holdings represent market movements post rebalancing.