Why this fundie is putting 60% of his portfolio in health stocks – Livewire Markets

The search term adopt a healthcare worker has soared in popularity on Google in recent times as part of heartwarming campaigns to support frontline workers.

But one fundie from Pengana Capitalhas decided to take the interesting step of adopting a bunch of healthcare stocks developing innovative vaccines and treatments that could turn the tide against COVID-19 and other infectious diseases.

James McDonald, Portfolio Manager of the Pengana High Conviction Equities Fund, has been investing in the medical space for over 20 years. He revealed at a recent webinar that he used the downturn in March to bump up the funds healthcare exposure to a whopping 60%, from 40% previously.

McDonalds rationale for such a significant exposure is that while COVID-19 will bend and reshape industries and consumer behaviours in unpredictable ways, the need for healthcare will always remain and short-term headwinds such as deferring elective surgeries will inevitably pass.

He then dove into his top healthcare positions including 2 recently added, and how theyre tackling the worlds big problems. Two companies are ASX listed, while one is an American name making headlines.

ASX-listed Genetic Signatures is a new addition to the Pengana portfolio. The medical diagnostics producer recently developed a SARS-CoV-2 testing kit which has been approved by regulators here and in Europe, and is awaiting authorisation from the U.S.

While this means the company will benefit from a pickup in COVID-19 testing demand, its a smaller part of a bigger, more exciting story for GSS. McDonald says the installation of its testing products in hospitals and labs should help raise awareness of its other products that can detect gastroenteritis pathogens, numerous respiratory infections and antibiotic-resistant superbugs. These approved tests have a global opportunity of over $800 million against the backdrop of a broader medical diagnostics market growing at ~8% per annum. Plus, the company has a market value of $240 million with $40 million cash in the bank.

Nuclear medicine small-cap Telix Pharmaceuticals, whose Chief Medical Officer joined from Cochlear, is another company McDonald likes. Telixs market cap is $280 million and it holds $35 million of cash in the bank.

The company is developing a pipeline of molecularly-targeted radiation products to image and treat renal, prostate and brain cancer and has attracted the attention of oncology societies in Europe and the U.S. McDonald added that the Food and Drug Administration gave the company a glowing review about the efficacy of their prostate cancer imaging product (illumet) and Telix is hoping for final approvals by year-end.

Telixs prostate cancer imaging product has already been tested on 12,000 people at over 100 facilities and is currently being distributed by drug wholesaler Cardinal Health for US$300 per dose.

The other new addition is Gilead, a US$100 billion American healthcare giant and one of the frontrunners in developing a treatment for patients with COVID-19 with its Ebola drug remdesivir.

The effectiveness of the drug has been the subject of mixed press reports recently. On 16 April, a University of Chicago phase-3 trial showed rapid recoveries in patients with COVID-19, but about a week later leaked draft documents from the WHO suggested a trial in China highlighted that the drug had no benefit. But Gilead contends that trial was stopped early and proved inconclusive.

McDonald suggests investors turn their attention to trial results on patients with moderate symptoms due in late May, as a test on monkeys who were infected with COVID-19 had suggested that remdesivir could be effective where the disease is severe. Either way, he reckons any success around COVID-19 should only be seen as icing on the cake, as Gilead's powerhouse in HIV treatment keeps powering and it looks to find more innovations.

Other stocks

McDonald says hes not all in on healthcare and is positioning himself in other recovery names, such as Uber Technologies (NYS:UBER). He believes that the Ubers competitors will likely be hit much harder by the downturn but for the recovery, believes that consumers will prefer to move around in cars over public transport to keep social distancing. Hes also kept 20% of the portfolio in cash for other opportunities.

If you are interested in watching the full webinar, you can access it here

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Why this fundie is putting 60% of his portfolio in health stocks - Livewire Markets