Global equity markets posted positive gains throughout most of 2024 with the main trend appearing to be a rotation into some of the more economically sensitive areas of the market such as information technology and communication services.

Comparatively, healthcare really struggled and underperformed the broader market, as it did in 2023. Not only has the macroeconomic environment favoured more cyclical sectors, the US political situation has added further short-term uncertainty following a Republican clean-sweep and confirmation of Donald Trump as the 47th US President. In isolation, this is not hugely disconcerting for the healthcare industry, but when he announced Robert F Kennedy, Jr (RFK) as his nominee to run the Department of Health and Human Services, he introduced a greater level of uncertainty for healthcare investors given some of RFK’s public comments against vaccines, especially COVID-19 vaccines and fluoride in water.

Importantly, however, the sector’s fundamentals appear to be in rude health, as illustrated by high levels of innovation, new product cycles driving dynamic growth and ongoing demand for healthcare products and services. Valuations are also extremely attractive for the earnings growth forecast on offer.

Fundamentals: Innovating, adopting new technologies and delivering growth

The healthcare industry is highly innovative, is adopting cutting-edge technologies and is focused on addressing high unmet medical needs, in parallel with trying to satisfy the ever-growing demand for much-needed products and services. Using FDA data as a proxy, a steadily improving cadence of new drug approvals in recent years underpins the idea that the industry is generating positive outcomes from its R&D investments. Ground-breaking breakthroughs in areas of high unmet needs such as obesity, irregular heart rhythm, Alzheimer’s disease and smoker’s cough not only offer patients hope, but also present attractive, commercial opportunities for the participants.

Diagnostics is also an area where artificial intelligence and machine learning could make a real difference, especially in areas such as colonoscopy and ultrasound.

The adoption of new technologies is also evident, as healthcare systems globally look to generate much-needed efficiencies to be able to deliver more healthcare to more people without compromising quality of care –  this is where artificial intelligence (AI) and machine learning (ML) can play a vital role. On the services side, key areas include the ability to automate coding and billing in hospitals, improving the efficiency of revenue cycle management and helping prevent fraud. Diagnostics is also an area where AI and ML could make a real difference, especially in areas such as colonoscopy and ultrasound.

Access: Is innovation without access truly innovative?

Access and affordability are critical for both societal good and the sustainability of healthcare systems. After all, generic drugs and biosimilars account for c90% of all US prescriptions but represent only 13% of spending, offering clear evidence of the value that low-cost, high-quality medicines bring to patients, healthcare systems and government budgets alike. With materially lower prices, more and more patients can access medications that would previously have been prohibitively expensive. As such, it is imperative that regulators and manufacturers continue to work together to ensure the long-term sustainability for the generics and biosimilars industry.

Conclusion: Dislocated from fundamentals

Healthcare is heavily out of favour, as illustrated by recent ETF outflows, depressed valuations and low investor appetite, yet the sector has multiple tailwinds that are both dynamic and durable. In the near term, exciting new product cycles should drive revenue momentum that should translate into attractive earnings and cashflow.

There is also high hope that pipelines could reinvent the shape of companies’ top lines beyond the current wave of new product launches. All this is sitting on top of a number of secular, long-term investment themes that include an ageing population that is developing more and more chronic diseases, emerging markets, prevention, industry consolidation and outsourcing. There will likely be short-term volatility, especially as the new administration in the US establishes itself, but the current investment opportunity is as exciting as it is rare.

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Risks

  • Capital is at risk and there is no guarantee the Fund will achieve its objective. Investors should make sure their attitude towards risk is aligned with the risk profile of the Fund before investing.
  • Past performance is not a reliable guide to future performance. The value of investments may go down as well as up and you might get back less than you originally invested as there is no guarantee in place.
  • The value of a fund’s assets may be affected by uncertainties such as international political developments, market sentiment, economic conditions, changes in government policies, restrictions on foreign investment and currency repatriation, currency fluctuations and other developments in the laws and regulations of countries in which investment may be made. Please see the Fund’s Prospectus for details of all risks.
  • The Fund invests in the shares of companies, and share prices can rise or fall due to several factors affecting global stock markets.
  • The Fund uses derivatives which carry the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions, such as failure amongst market participants.
  • The Fund invests in assets denominated in currencies other than the Fund's base currency. Changes in exchange rates may have a negative impact on the Fund's investments. If the share class currency is different from the currency of the country in which you reside, exchange rate fluctuations may affect your returns when converted into your local currency. Hedged share classes may have associated costs which may impact the performance of your investment.
  • The Fund invests in a relatively concentrated number of companies and industries based in one sector. This focused strategy can produce high gains but can also lead to significant losses. The Fund may be less diversified than other investment funds.


Important Information
This is a marketing communication and does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. Any opinions expressed may change. This document does not contain information material to the investment objectives or financial needs of the recipient. This document is not advice on legal, taxation or investment matters. Tax treatment depends on personal circumstances. Investors must rely on their own examination of the fund or seek advice. Investment may be restricted in other countries and as such, any individual who receives this document must make themselves aware of their respective jurisdiction and observe any restrictions.

A decision may be taken at any time to terminate the marketing of the Fund in any EEA Member State in which it is currently marketed. Shareholders in the affected EEA Member State will be given notification of any decision and provided the opportunity to redeem their interests in the Fund, free of any charges or deductions, for at least 30 working days from the date of the notification.

Investment in the Fund is an investment in the shares of the Fund and not in the underlying investments of the Fund. Further information about fund characteristics and any associated risks can be found in the Fund’s Key Investor Document or Key Investor Information Document (“KID” or “KIID”), the Prospectus (and relevant Fund Supplement), the Articles of Association and the Annual and Semi-Annual Reports. Please refer to these documents before making any final investment decisions.  Investment in the Fund concerns shares of the Fund and not in the underlying investments of the Fund. These documents are available free of charge at Polar Capital Funds plc, Georges Court, 54-62 Townsend Street, Dublin 2, Ireland, via email by contacting Investor-Relations@polarcapitalfunds.com or at www.polarcapital.co.uk. The KID is available in the languages of all EEA member states in which the Fund is registered for sale; the Prospectus, Annual and Semi-Annual Reports and KIID are available in English.

The Fund promotes, among other characteristics, environmental or social characteristics and is classified as an Article 8 fund under the EU's Sustainable Finance Disclosure Regulation (SFDR). For more information, please see the Prospectus and relevant Fund Supplement.

ESG and sustainability characteristics are further detailed on the investment manager’s website: - https://www.polarcapital.co.uk/ESG-and-Sustainability/Responsible-Investing/.

A summary of investor rights associated with investment in the Fund can be found here.

This document is provided and approved by both Polar Capital LLP and Polar Capital (Europe) SAS.

Polar Capital LLP is authorised and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom, and the Securities and Exchange Commission (“SEC”) in the United States. Polar Capital LLP’s registered address is 16 Palace Street, London, SW1E 5JD, United Kingdom.

Polar Capital (Europe) SAS is authorised and regulated by the Autorité des marchés financiers (AMF) in France. Polar Capital (Europe) SAS’s registered address is 18 Rue de Londres, Paris 75009, France.

Polar Capital LLP is a registered Investment Advisor with the SEC. Polar Capital LLP is the investment manager and promoter of Polar Capital Funds plc – an open-ended investment company with variable capital and with segregated liability between its sub-funds – incorporated in Ireland, authorised by the Central Bank of Ireland and recognised by the FCA. Bridge Fund Management Limited acts as management company and is regulated by the Central Bank of Ireland. Registered Address: Percy Exchange, 8/34 Percy Place, Dublin 4, Ireland.

Benchmark: The Fund is actively managed and uses the MSCI AC World Daily Total Return Net Health Care Index as a performance target and to calculate the performance fee. The benchmark has been chosen as it is generally considered to be representative of the investment universe in which the Fund invests. The performance of the Fund is likely to differ from the performance of the benchmark as the holdings, weightings and asset allocation will be different. Investors should carefully consider these differences when making comparisons. Further information about the benchmark can be found here. The benchmark is provided by an administrator on the European Securities and Markets Authority (ESMA) register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.

Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.

Country Specific Disclaimers: When considering an investment into the Fund, you should make yourself aware of the relevant financial, legal and tax implications. Neither Polar Capital LLP nor Polar Capital Funds plc shall be liable for, and accept no liability for, the use or misuse of this document.

None

Global equity markets posted positive gains throughout most of 2024 with the main trend appearing to be a rotation into some of the more economically sensitive areas of the market such as information technology and communication services.

Comparatively, healthcare really struggled and underperformed the broader market, as it did in 2023. Not only has the macroeconomic environment favoured more cyclical sectors, the US political situation has added further short-term uncertainty following a Republican clean-sweep and confirmation of Donald Trump as the 47th US President. In isolation, this is not hugely disconcerting for the healthcare industry, but when he announced Robert F Kennedy, Jr (RFK) as his nominee to run the Department of Health and Human Services, he introduced a greater level of uncertainty for healthcare investors given some of RFK’s public comments against vaccines, especially COVID-19 vaccines and fluoride in water.

Importantly, however, the sector’s fundamentals appear to be in rude health, as illustrated by high levels of innovation, new product cycles driving dynamic growth and ongoing demand for healthcare products and services. Valuations are also extremely attractive for the earnings growth forecast on offer.

Fundamentals: Innovating, adopting new technologies and delivering growth

The healthcare industry is highly innovative, is adopting cutting-edge technologies and is focused on addressing high unmet medical needs, in parallel with trying to satisfy the ever-growing demand for much-needed products and services. Using FDA data as a proxy, a steadily improving cadence of new drug approvals in recent years underpins the idea that the industry is generating positive outcomes from its R&D investments. Ground-breaking breakthroughs in areas of high unmet needs such as obesity, irregular heart rhythm, Alzheimer’s disease and smoker’s cough not only offer patients hope, but also present attractive, commercial opportunities for the participants.

Diagnostics is also an area where artificial intelligence and machine learning could make a real difference, especially in areas such as colonoscopy and ultrasound.

The adoption of new technologies is also evident, as healthcare systems globally look to generate much-needed efficiencies to be able to deliver more healthcare to more people without compromising quality of care –  this is where artificial intelligence (AI) and machine learning (ML) can play a vital role. On the services side, key areas include the ability to automate coding and billing in hospitals, improving the efficiency of revenue cycle management and helping prevent fraud. Diagnostics is also an area where AI and ML could make a real difference, especially in areas such as colonoscopy and ultrasound.

Access: Is innovation without access truly innovative?

Access and affordability are critical for both societal good and the sustainability of healthcare systems. After all, generic drugs and biosimilars account for c90% of all US prescriptions but represent only 13% of spending, offering clear evidence of the value that low-cost, high-quality medicines bring to patients, healthcare systems and government budgets alike. With materially lower prices, more and more patients can access medications that would previously have been prohibitively expensive. As such, it is imperative that regulators and manufacturers continue to work together to ensure the long-term sustainability for the generics and biosimilars industry.

Conclusion: Dislocated from fundamentals

Healthcare is heavily out of favour, as illustrated by recent ETF outflows, depressed valuations and low investor appetite, yet the sector has multiple tailwinds that are both dynamic and durable. In the near term, exciting new product cycles should drive revenue momentum that should translate into attractive earnings and cashflow.

There is also high hope that pipelines could reinvent the shape of companies’ top lines beyond the current wave of new product launches. All this is sitting on top of a number of secular, long-term investment themes that include an ageing population that is developing more and more chronic diseases, emerging markets, prevention, industry consolidation and outsourcing. There will likely be short-term volatility, especially as the new administration in the US establishes itself, but the current investment opportunity is as exciting as it is rare.

Risks

  • Capital is at risk and there is no guarantee the Fund will achieve its objective. Investors should make sure their attitude towards risk is aligned with the risk profile of the Fund before investing.
  • Past performance is not a reliable guide to future performance. The value of investments may go down as well as up and you might get back less than you originally invested as there is no guarantee in place.
  • The value of a fund’s assets may be affected by uncertainties such as international political developments, market sentiment, economic conditions, changes in government policies, restrictions on foreign investment and currency repatriation, currency fluctuations and other developments in the laws and regulations of countries in which investment may be made. Please see the Fund’s Prospectus for details of all risks.
  • The Fund invests in the shares of companies, and share prices can rise or fall due to several factors affecting global stock markets.
  • The Fund uses derivatives which carry the risk of reduced liquidity, substantial loss and increased volatility in adverse market conditions, such as failure amongst market participants.
  • The Fund invests in assets denominated in currencies other than the Fund's base currency. Changes in exchange rates may have a negative impact on the Fund's investments. If the share class currency is different from the currency of the country in which you reside, exchange rate fluctuations may affect your returns when converted into your local currency. Hedged share classes may have associated costs which may impact the performance of your investment.
  • The Fund invests in a relatively concentrated number of companies and industries based in one sector. This focused strategy can produce high gains but can also lead to significant losses. The Fund may be less diversified than other investment funds.


Important Information
This is a marketing communication and does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments. Any opinions expressed may change. This document does not contain information material to the investment objectives or financial needs of the recipient. This document is not advice on legal, taxation or investment matters. Tax treatment depends on personal circumstances. Investors must rely on their own examination of the fund or seek advice. Investment may be restricted in other countries and as such, any individual who receives this document must make themselves aware of their respective jurisdiction and observe any restrictions.

A decision may be taken at any time to terminate the marketing of the Fund in any EEA Member State in which it is currently marketed. Shareholders in the affected EEA Member State will be given notification of any decision and provided the opportunity to redeem their interests in the Fund, free of any charges or deductions, for at least 30 working days from the date of the notification.

Investment in the Fund is an investment in the shares of the Fund and not in the underlying investments of the Fund. Further information about fund characteristics and any associated risks can be found in the Fund’s Key Investor Document or Key Investor Information Document (“KID” or “KIID”), the Prospectus (and relevant Fund Supplement), the Articles of Association and the Annual and Semi-Annual Reports. Please refer to these documents before making any final investment decisions.  Investment in the Fund concerns shares of the Fund and not in the underlying investments of the Fund. These documents are available free of charge at Polar Capital Funds plc, Georges Court, 54-62 Townsend Street, Dublin 2, Ireland, via email by contacting Investor-Relations@polarcapitalfunds.com or at www.polarcapital.co.uk. The KID is available in the languages of all EEA member states in which the Fund is registered for sale; the Prospectus, Annual and Semi-Annual Reports and KIID are available in English.

The Fund promotes, among other characteristics, environmental or social characteristics and is classified as an Article 8 fund under the EU's Sustainable Finance Disclosure Regulation (SFDR). For more information, please see the Prospectus and relevant Fund Supplement.

ESG and sustainability characteristics are further detailed on the investment manager’s website: - https://www.polarcapital.co.uk/ESG-and-Sustainability/Responsible-Investing/.

A summary of investor rights associated with investment in the Fund can be found here.

This document is provided and approved by both Polar Capital LLP and Polar Capital (Europe) SAS.

Polar Capital LLP is authorised and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom, and the Securities and Exchange Commission (“SEC”) in the United States. Polar Capital LLP’s registered address is 16 Palace Street, London, SW1E 5JD, United Kingdom.

Polar Capital (Europe) SAS is authorised and regulated by the Autorité des marchés financiers (AMF) in France. Polar Capital (Europe) SAS’s registered address is 18 Rue de Londres, Paris 75009, France.

Polar Capital LLP is a registered Investment Advisor with the SEC. Polar Capital LLP is the investment manager and promoter of Polar Capital Funds plc – an open-ended investment company with variable capital and with segregated liability between its sub-funds – incorporated in Ireland, authorised by the Central Bank of Ireland and recognised by the FCA. Bridge Fund Management Limited acts as management company and is regulated by the Central Bank of Ireland. Registered Address: Percy Exchange, 8/34 Percy Place, Dublin 4, Ireland.

Benchmark: The Fund is actively managed and uses the MSCI AC World Daily Total Return Net Health Care Index as a performance target and to calculate the performance fee. The benchmark has been chosen as it is generally considered to be representative of the investment universe in which the Fund invests. The performance of the Fund is likely to differ from the performance of the benchmark as the holdings, weightings and asset allocation will be different. Investors should carefully consider these differences when making comparisons. Further information about the benchmark can be found here. The benchmark is provided by an administrator on the European Securities and Markets Authority (ESMA) register of benchmarks which includes details of all authorised, registered, recognised and endorsed EU and third country benchmark administrators together with their national competent authorities.

Third-party Data: Some information contained herein has been obtained from third party sources and has not been independently verified by Polar Capital. Neither Polar Capital nor any other party involved in or related to compiling, computing or creating the data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any data contained herein.

Country Specific Disclaimers: When considering an investment into the Fund, you should make yourself aware of the relevant financial, legal and tax implications. Neither Polar Capital LLP nor Polar Capital Funds plc shall be liable for, and accept no liability for, the use or misuse of this document.