Paul MacDonald is chief investment officer and portfolio manager, Harvest Portfolios Group. His focus is large cap health-care stocks
Top Picks:
UnitedHealth Group (UNH-N)
We initiated a position in United Health Group in July of 2015 at a cost of $122.
UnitedHealth Group is the largest health insurer in the U.S., covering some 70 million lives. UnitedHealth Group is a direct beneficiary of the Affordable Care Act and, more recently, benefits from a dislocation in the M&A market with its rivals. It has diversified operations and their acquisition of pharmacy benefits manager Catamaran provides them a unique competitive positioning.
Merck & Co (MRK-N)
We initiated a position at $58.53 over 12 months ago and recently added in March at $52.
Merck & Co is a large-cap diversified drug manufacturing company. Merck & Co has a proven ability to generate consistent returns and has offset patent declines due to their deep pipeline of new drugs from acquisitions and organic R&D. Merck & Co has an attractive yield with modest growth and we see potential upside surprises from key blockbuster drugs over the coming 12 months.
Amgen (AMGN-Q)
We initiated at $160 over 12 months ago and recently added to the position in March at $143.
Amgen is one of the largest biotechnology companies in the world. Amgen has a proven ability to extract value through acquiring late-stage drugs coupled with a deep organic pipeline. Amgen has significant biotech and biosimilar exposure without the binary outcomes from many smaller biotech companies have.
Market outlook:
1. The health-care sector is a direct beneficiary of one of the only secular, non-cyclical and permanent investment themes – the global aging population.
2. As wealth increases in developing economies, there is a disproportionate increase in the amount of spending on health care – this will likely result in significant increased demand for health-care products over time.
3. Technological innovation coupled with regulatory advancements paves the way for catalysts across the health-care subsectors.
The positive sector dynamics over the medium to longer term far outweigh the immediate political noise surrounding health care in U.S. election discussions. In addition, recent short-term macro headwinds from U.K., and U.S. fed rate policy rhetoric have caused enhanced volatility. This has resulted in attractive entry valuations and served to enhance income from covered call strategies such as the one used in the Healthcare Leaders Income Fund.
Our fund, the Healthcare Leaders Income Fund (HHL.UN) invests in an equally weighted portfolio of large cap health care issuers that trade on a North American exchange and have listed options.