Polar Capital Healthcare Opportunities
Polar Capital Healthcare Opportunities fund is run by experienced manager Gareth Powell, who has also worked in the healthcare industry and academic laboratories. He invests in healthcare companies of all sizes, with a slight bias towards smaller ones. He looks for themes in the market and identifies firms that are reasonably priced and with good growth prospects. The fund will generally hold less in the pharmaceutical sector than many of its rivals.
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Gareth joined Polar Capital in 2007 to establish the healthcare team, bringing over 22 years of investment experience in the healthcare sector, including 14 years as a Portfolio Manager. Before joining Polar Capital, he worked at Framlington, where he started his investment management career in 1999. He later joined the Healthcare Team in 2001 and co-launched the Framlington Biotech Fund, which he managed from 2004 until his departure. Gareth studied biochemistry at Oxford University, gaining experience at Yamanouchi (now Astellas) and various academic labs, including the Sir William Dunn School of Pathology. He is also a CFA charterholder.
Gareth joined Polar Capital in 2007 to establish the healthcare team, bringing over 22 years of investment experience in the healthcare sector, including 14 years as a Portfolio Manager. Before joining Polar Capital, he worked at Framlington, where he started his investment management career in 1999. He later joined the Healthcare Team in 2001 and co-launched the Framlington Biotech Fund, which he managed from 2004 until his departure. Gareth studied biochemistry at Oxford University, gaining experience at Yamanouchi (now Astellas) and various academic labs, including the Sir William Dunn School of Pathology. He is also a CFA charterholder.
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Company Description
Founded in 2001, Polar Capital supports more than 12 investment teams that focus on a range of products. Its founding strategy of fostering an equity culture amongst its employees and providing high levels of transparency to clients means 30% of the firm’s equity is currently held by directors, founders and employees. Polar Capital is principally located in London and maintains offices in Tokyo, Connecticut, Jersey, Edinburgh, Shanghai and Paris. It was awarded the Elite Equities Provider Rating in 2019 and 2021.
Fund Performance
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Investment process
Polar Capital Healthcare Opportunities has a multi-cap approach, investing around 30% in large companies and the rest in small and medium sized firms.
The manager focuses on several ideas to identify potential holdings: the impact of new products, specialist markets, potential M&A activity, innovative technologies, and geographical or sector anomalies. He also believes that having a longer investment horizon than the market creates opportunities.
The process starts with a universe of around 3,000 global healthcare companies. These are primarily based in the US, with many in Europe, plus the rest of the world. This list will get narrowed down based on the six opportunity criteria mentioned above, looking across the four main areas of the healthcare industry; pharmaceuticals, biotechnology, services and medical devices.
This work will be based on the team’s vast industry experience, the contacts they have built, as well as reading industry journals and news and conducting meetings with companies. It ultimately reduces the universe down to around 70 potential stock ideas. From this list of c.70 ideas, the team will conduct much deeper analysis, both financially and operationally. The final portfolio will consist of just 40-45 companies.
Gareth aims to outperform through superior analysis, and the identification of undiscovered opportunities. He can take a longer-term view than the market so is willing to invest through market noise and hold onto ideas through difficult periods. This is especially relevant for smaller companies, which should be the primary driver of Polar Capital Healthcare Opportunities’ relative outperformance.
Risk
The multi cap approach attempts to diversify away some of the risk. For example, Gareth is aware that smaller companies offer better long-term upside, but often have higher volatility and risk for loss, whereas larger companies mitigate this, but the valuation anomalies tend to be shorter in duration. As such, Gareth splits the portfolio into three conceptual ‘buckets’ based on their expected holding period. This will enable the team to hold a diversified blend of companies and try to generate better risk-adjusted returns at a portfolio level.
The risk exposures are monitored by an independent risk management system. The team reports into operations and compliance teams, who use quantitative controls to ensure the portfolio characteristics remain consistent, and any discrepancies are raised.
ESG
ESG - Integrated
Being a specialist fund investing in a specific industry, ESG analysis is a lot more granular with this fund, but it remains an important part of the risk assessment and due diligence process. Considering the level of regulation in the industry, Gareth has a particular focus on governance, and how much importance management teams place on adhering to these rules. Meeting and engaging with these teams is an essential part of the investment journey and ESG considerations will be a part of this discussion. The industry also has a naturally large social impact, looking to find improvements in both treatments and care to help people live longer and better lives. The team engages with firms with poor overall ratings to try and improve practices. Divestment is an option should this approach not be successful, though Gareth prefers to take a productive improvement approach.
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