May 10, 2017

Paul MacDonald's Top Picks: May 10, 2017

BNN Bloomberg

Paul MacDonald , BNN

Paul MacDonald, chief investment officer and portfolio manager at Harvest Portfolios Group

Focus: Health-care stocks
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MARKET OUTLOOK

Health-care 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 health care. This will likely result in significant increased demand for health-care products over time.
Technological innovation, coupled with regulatory advancements, paves the way for catalysts across the health care sub-sectors.

The positive sector dynamics over the medium to longer term far outweigh the immediate political noise surrounding the “repeal and replace” of the Affordable Care Act. This has resulted in attractive equity valuations. The American Health Care Act (AHCA) that recently passed in the first round of voting still has significant hurdles to be enacted in its current form. As there becomes less uncertainty on policies, the sector ought to recover to a market multiple. 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 remain high in addition to numerous market-moving company catalysts over coming quarters, suggesting that a diversified approach to the sector is prudent.

TOP PICKS

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 two years driven by organic growth coupled with a deep pipeline of trials that will provide catalysts. Recent volatility presents an attractive entry point into one of the Fund’s more growth-focused positions.

UNITEDHEALTH GROUP (UNH.N) – We initiated a position in UnitedHealth Group in July 2015 at a cost of $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 United Health and Anthem Inc.

ASTRAZENECA (AZN.N)
One of the companies in the Immuno-Oncology Basket. Significant shorter-term catalysts within the Immuno-oncology space will have implications for the entire group. Key data from conferences in June in addition to key phase III trial through early September will drive valuations. Given potential winners and losers based on these data, a diversified approach is prudent and we advocate holding three key positions with exposure towards this segment.

DISCLOSURE	PERSONAL	FAMILY	PORTFOLIO/FUND
CELG	N	N	Y
UNH	N	N	Y
AZN	N	N	Y

PAST PICKS: FEBRUARY 22, 2016

Update: We have not sold any of these picks. However, we have used put options in two cases to protect downside on both MRK and AMGN.

ANTHEM INC. (ANTM.O)
Continue to hold a position as Anthem is the dominant health insurance provider in the United States, benefitting from macro tailwinds and strong brand recognition.

Then: $132.17
Now: $180.03
Return: 36.21%
TR: 39.41%

MERCK & CO. (MRK.N)
Continue to hold a position and remains a top pick despite strong performance. Given the time proximity to several key catalysts within the sub-sector, we advocate being diversified and holding several stocks exposed to similar trials and catalysts.

Then: $50.77
Now: $63.89
Return: 25.85%
TR: 30.86%

CELGENE CORP. (CELG.O)

Then: $104.58
Now: $119.70
Return: 14.45%
TR: 14.45%

TOTAL RETURN AVERAGE: 28.24%

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

FUND PROFILE: HEALTHCARE LEADERS INCOME FUND (HHL.TO)
The Healthcare Leaders Income ETF invests in an equally-weighted portfolio of 20 large cap health-care 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 non-Canadian currency exposure while HHL_u.TO trades in U.S. dollars and is not currency hedged. The Fund pays a tax-efficient monthly distribution of $0.0583 (CAD in respect to the HHL.TO and USD in respect to HHL_u.TO).

PERFORMANCE AS OF APRIL 30, 2017:

1 month: Fund 1.96%, Index* 1.89%
1 year: Fund 6.01%, Index* 6.96%
2 years (annualized): Fund 1.80%, Index* 0.73%
Since inception (annualized return since December 2014): Fund 3.29%, Index* 2.99%

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

* Index: MSCI Daily TR World Net Health Care in U.S. dollars

TOP HOLDINGS AND WEIGHTINGS

AS OF APRIL 30, 2017: