Full episode: Market Call Tonight for Wednesday, March 21, 2018
Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group
Focus: Healthcare stocks
The healthcare sector is a direct beneficiary of one of the only secular, non-cyclical and permanent investment themes: the global aging population.
As wealth increases in developing economies, there is a disproportionate increase in the amount of spending on healthcare. This will likely result in significantly increased demand for healthcare products and services over time.
Technological innovations, coupled with regulatory advancements, pave the way for catalysts across the healthcare subsectors.
Widely known political discussions on how to deal with the rising healthcare costs over recent years has caused sector volatility to increase. The political discussion has recently started to filter to subsectors beyond drug manufacturers and is particularly focused on the “middlemen,” an area where we have reduced exposure. Ensuring companies have differentiated products, solid development pipelines and proven histories of execution are key for navigating the shorter-term noise and being positioned for key catalysts over the medium term.
The recent pullback has resulted in contracting valuation metrics representing an attractive buying opportunity for those that can look beyond the shorter-term volatility. Lastly, the increase in the implied volatility levels has resulted in attractive income derived from covered call strategies such as the one used in the Healthcare Leaders Income Fund.
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 missed a key drug trial and has made several missteps, including missing on guidance and recent FDA applications. This has caused sentiment towards the company and management to become overly pessimistic, given their balance sheet, cash flow profile and pipeline.
MERCK & CO (MRK.N)
We initiated a position over three years ago. Cost base in mid $50s.
Merck & Co is a large-cap diversified drug manufacturing company. It 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. The company has an attractive yield and balance sheet. Of note is that Merck has continued to generate positive developments from Keytruda, its leading immuno-oncology therapy.
We initiated a position in January in 2017 at around $120.
Stryker is a high-quality large cap medtech company that has a proven history of execution. They have one of the fastest growth profiles in the large-cap medtech universe, solid balance sheet flexibility and a diversified business. Particularly, there’s growing positive sentiment towards robotic surgical equipment, where Stryker’s Mako system is positioned as an industry pioneer and leader.
PAST PICKS: MAY 10, 2017
UNITEDHEALTH GROUP (UNH.N)
- Then: $173.39
- Now: $222.82
- Return: 28.50%
- Total return: 30.39%
- Then: $31.04
- Now: $34.61
- Return: 11.50%
- Total return: 16.36%
- Then: $119.68
- Now: $88.31
- Return: -26.21%
- Total return: -26.21%
Total return average: 6.84%
Healthcare Leaders Income ETF (HHL.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 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.TO is priced in Canadian dollars and hedges the portfolio's non-Canadian currency exposure while HHLu.TO trades in U.S. dollars and is not currency hedged. The fund pays a tax efficient monthly distribution $.0583 (CAD in respect to the HHL and USD in respect to HHLu).
Performance as of: Feb. 28, 2018
- 1 Month: 4.53% fund, 4.48% index
- 1 Year: 5.93% fund, 11.79% index
- 3 Year: 2.94% fund, 3.94% index
* Index: MSCI Daily TR World Net Healthcare, USD
* Based on reinvested dividends, net of fees
HOLDINGS AND WEIGHTINGS
Fund is equally weighted, so top 10 simply reflect market movements from the recent quarter:
- Bristol-Myers Squibb Company: 5.40%
- AbbVie Inc: 5.20%
- Stryker Corporation: 5.20%
- Pfizer Inc: 5.20%
- Amgen Inc: 5.10%
- UnitedHealth Group Inc: 5.00%
- Quest Diagnostics Inc: 5.00%
- Boston Scientific Corporation: 5.00%
- Anthem Inc: 4.90%
- Eli Lilly and Company: 4.90%