“The markets feel extended in the very short term, with sentiment having improved significantly, so do not be surprised if we see a near-term pullback,” said James Douglas and Gareth Powell in a note to investors.
However, they reckon valuations for the drug and device makers and care providers “remain attractive” while the industry has “strong fundamentals, news flow and corporate activity”.
This, the Polar Capital pair said, should “should create a recipe for outperformance in 2020”.
However, they recognised that some investors are “climbing a wall of worry” over the potential re-election of Donald Trump later this year, whose piecemeal destruction of the Affordable Care Act (Obamacare) is seen as emblematic of his stance of matters health.
However, Douglas and Powell said it might be worth reflecting on the performance of the US semiconductors industry during the US-China trade stand-off (graphic below).
Rather than crumble as America went on the offensive, the component companies of the semiconductors index gained a weighted average 62% last year.
“With the presidential election being healthcare’s trade war, anything close to the performance of semiconductor stocks in 2019 would be a great outcome,” the Polar managers said.
Trust performed well
The Polar Capital Healthcare Trust itself finished 2019 strongly, gaining 1.64%. That was well ahead of its benchmark, the Morgan Stanley Global Healthcare Index, which was up 1.06% in December.
Positive contributors to performance during December were Horizon Pharma, Eli Lilly and Varian Medical Systems, said Polar, with Lilly benefiting from “upbeat” 2020 financial guidance.