Polar Capital Global Healthcare mulls early exit after strong year

Polar Capital Global Healthcare (PCGH ) trust is considering bringing forward the restructuring of the limited life company by a year after reporting a strong set of annual results.

Chair Lisa Arnold said that while the board was due to put forward proposals for beyond the £439m trust’s seven-year term at the annual general meeting in early 2026, it had already begun work on a corporate reorganisation that could offer shareholders an earlier-than-expected exit at close to net asset value.

Launched in 2010 with a fixed life until January 2018, the trust previously restructured in 2017 with investors offered a full exit and the option to roll over into a vehicle with a further seven-year life.

Over the year to 30 September, the trust delivered underlying returns of 15% while the shares jumped 17.9%, beating the MSCI ACWI Healthcare index benchmark’s 9.9%.

Arnold said the fundamentals for healthcare remained very strong, but there was still pressure on costs to fund new products and initiatives. This meant that access and affordability were increasingly critical if innovation was to flow through into drug companies’ earnings growth.

‘This is a theme our managers believe will be a driver for the next twelve months, together with continued excitement over the potential applications of technology, especially in AI and also for opportunities in emerging markets, particularly China, which could benefit from increased economic stimulus.’

Citywire A-rated fund managers James Douglas and Gareth Powell said the results were particularly pleasing given the challenging environment, with the defensive healthcare sector underperforming the broader market.

Performance across the portfolio of mega-cap and large-cap stocks was driven by those indirectly linked to the AI theme, as well as weight loss drugs.

The pair highlighted their large position in Danish biotech company Zealand Pharma as one of their standout performers, with continued appetite for weight-loss drugs and the potential they offer sending the shares soaring 155%.

Not owning its Danish peer Novo Nordisk, whose Wegovy weight loss drug has driven huge returns, was the largest detractor. The pair bought the company in the second half of the year during a drop in the share price.

The pair believe that after a tough period, China will now be a recovery story driven by significant government stimulus, which could strengthen global performance across medical equipment and supplies, pharmaceuticals and life sciences tools and services.

The re-election of Donald Trump and the Republicans’ clean sweep of the House of Congress and the Senate had caused uncertainty in the US, where almost half of the portfolio is invested. The nomination of Robert F Kennedy Jr to run the department of health was a concern given his opposition to vaccines, especially for Covid-19, and fluoride in water.

Another danger was if Trump allowed financial assistance to millions of Americans on Medicaid to expire at the end of 2025, a scenario that would create a headwind for healthcare insurance companies, while fewer patients would knock healthcare facilities and providers.

‘On the subject of drug pricing, things become even more opaque given the Republicans’ lack of public commentary. Maybe they will look to stall the 2022 Inflation reduction Act, which introduced measures aimed at reducing the cost of prescription drugs for US seniors, or perhaps the Trump Administration will look to negotiate even bigger price discounts?’, they said.

However, they added that the uncertainty could generate interesting investment opportunities.

Over the year, Douglas and Powell reduced overweight positions in healthcare facilities and medical devices, such as healthcare supplies and equipment. They remain positive on the sectors however.

They reduced borrowing, which it has historically used through zero dividend preference shares, entirely from 7.8% to zero, where it has remained. They have not ruled out further gearing in future.

The discount, or gap, between the share price and net asset value of the trust’s investments, narrowed from 7.7% to 4.8% over the period, but has since widened again to 5.7%.

Over the last five years, shareholder returns of 64% are ahead of the benchmark’s 45%, Morningstar data shows.