Healthcare Discovery: innovative small-cap ideas for improved healthcare outcomes
Fund Manager, Global Healthcare Team
We launched the Healthcare Discovery Fund on 31 January 2020 though doing so into what turned into a global medical crisis was obviously not what we had in mind at the time. While our experience managing funds through the dot.com bubble of 2000 and the global financial crisis of 2007-08 trained us well, those now pale in comparison to the events we saw in 2020.
Having said that, we were keen to launch a smaller companies fund for a number of reasons, including the desire to have one in place and ready for any change in market leadership. The majority of the Polar Capital healthcare funds invest in smaller companies to varying degrees so as a team we were seeing more smaller company investment opportunities than we had a natural home for. Another consideration was to introduce the Healthcare Discovery Fund as a complement for clients to the rest of our suite of specialist funds as well as for those making their own direct equity investments in healthcare companies further up the market-cap scale.
Our investment objective is to unearth those innovative smaller companies, often overlooked by the market, with a real change agent or opportunity ahead to transform their market perception and, in turn, their value.
The name of the Fund mostly gives the game away, as our investment objective is to unearth those innovative smaller companies, often overlooked by the market, with a real change agent or opportunity ahead to transform their market perception and, in turn, their value. The investible universe is large and diverse and includes representatives from all subsectors of healthcare that are listed on a public exchange anywhere in the world. We use the relative benchmark, largest member market cap to guide our top-end cut-off market cap, currently around $10bn. Even so, when the market backdrop supports it, the Fund would have most of its investments below a $5bn market cap. Similar to other Polar Capital healthcare investment strategies, we keep to a compressed list of holdings – 60-80 for this Fund – in order to take active share when appropriate.
Our bias will always be to those companies with novel and significant solutions to real-world healthcare questions. The coronavirus pandemic has clearly shown what the biopharmaceutical industry can do: the current vaccines in development, and their value to society at large, are cases in point. It has also made it painfully clear that while we are witnessing 21st century treatment and cures, our global healthcare delivery infrastructure is out of date. Fortunately, the disruption of the status quo here had already begun pre-pandemic and while it will not be at lightning speed, there should be opportunities for investors to support the ongoing progress here.
Since the Fund’s launch, we have supported a more flexible healthcare infrastructure within the portfolio, including treatment at home and in outpatient settings which we have gradually increased in position size. In addition, those companies working to offer precise and rapid diagnostics were also investment areas over 2020 and positive contributors to performance for the Fund. Healthcare technology companies, including those seeking to further remove paper from the system as well as those harnessing treatment algorithms, robotics and artificial intelligence to improve the accuracy and efficiency of care, are other examples of areas of current and active investment interest.
In sum, innovative new therapies and treatments are just one piece of the healthcare challenge at hand. The Healthcare Discovery Fund looks for companies with innovative ideas and strategies with readily available technologies to better improve the outcomes for all key stakeholders – patients, providers and payers.
Deane joined Polar Capital in June 2013 as a senior analyst for the Healthcare team, and has over 36 years’ industry experience, including over 15 years within healthcare asset management. She trained as a clinical pharmacist, graduating with a post baccalaureate Doctor of Pharmacy from the University of Georgia.
Deane began her career at the Medical College of Georgia, before becoming a clinical specialist in Drug Information and Adult Internal Medicine with Emory University Hospital in Atlanta, Georgia. After several years, she moved to the UK to join Framlington (now AXA Framlington) applying her extensive pharmaceutical expertise working as an analyst for the healthcare unit trust, led by Anthony Milford. She went on to become lead portfolio manager of the Framlington Healthcare and Framlington Biotechnology funds. Deane is both a US and UK citizen.