Polar Capital Healthcare Opportunities I Inc

The fund has delivered strong performance versus the global healthcare index it uses as a benchmark over the five years to October 2025. Positive returns in 2023, when the index fell, and then in 2024 in a rising market, have been particularly significant. That said, returns have not been high compared to general equity indices which have delivered much higher returns thanks to the success of large cap technology businesses, in particular those with an AI angle. The price of the fund has been more volatile than a general market index too. One reason is that it is a single sector fund and therefore less concentrated, while political controversy has added to the volatility over the period, relating to the pandemic and its aftermath as well as elections in the USA.

When investing in a single sector of a thematic fund, an investor should consider the outlook for that sector or theme as much as the skill or strategy of the individual manager. Gareth and his team argue the sector looks cheap compared to its own history. They note that rising and high interest rates are worse environments for the sector, so as and when rates fall this could create a more positive environment. They also point to the poor performance of small and mid caps in recent years. They have historically done very well after a period of poor performance, so the team think this could be a fruitful theme for them to exploit in the coming years. As well-resourced active stock pickers, we think they have the tools to add value by investing in small and mid caps so the fund could benefit if this comes to pass.

It’s also worth considering the themes that are supporting healthcare spending and which could therefore support the earnings of companies in this sector. Aging developed world populations and wealthier emerging world populations should both boost demand for healthcare. In fact, the team think demand will grow faster in the emerging markets than the developed markets, and they invest in these countries too. On the other hand, investors need to consider the political risks to the healthcare sector, both regulation, including drug pricing, and tariffs, as well as the danger that healthcare spending could come under pressure if the public finances in the key developed world markets deteriorate.

There are over 4,000 global healthcare companies which the team have to consider. They filter these down by looking for one or more of six major investment drivers to approximately 70 potential investments. They look for opportunities where operating leverage (where companies can make bigger profit gains from small increases in sales by using their existing resources efficiently, for example, machinery, warehouses, or staff, ) and the impact of new products may be underestimated, and where a longer investment horizon enables the team to take advantage of the time-value proposition inherent in healthcare. They also target specialist or niche markets often overlooked by investors, under-rated merger & acquisition (M&A) activity, the potential for new technologies to generate significant returns, and geographical or sector valuation anomalies. The research process employs extensive use of a physician doctor and consultant network to gain insight into user experience, regular meetings with company management and site visits to assess leadership quality, attendance at investor conferences to hear from companies across the supply chain, and participation in medical meetings to gain valuable input from medical professionals on future sales potential. When it comes to analysis of a businesses financial position, sales and earnings revisions (changes in expected sales and profits) are seen as the most powerful driver of returns, so rigorous due diligence is used to inform sales expectations, and the team’s industry experience helps to assess likely margin profit progression. How the team value potential investments depends on the company’s stage in its life cycle, and they use a variety of techniques and metrics. Given the importance of earnings growth and valuation to stock selection, the team describe their style as growth-at-a-reasonable-price (GARP). The final portfolio, the Polar Capital Healthcare Opportunities Fund, consists of 40 to 45 stocks.

• There is political risk to consider with the healthcare sector
• Single sector funds are likely to be more volatile than broad market exposure
• High interest rates might see high growth sectors like healthcare return less than in the past