FUNDS IN FOCUS
Identifying trends Gordon Smith Head of Fund Research At a webinar earlier this year Gordon talked to four fund managers about some key global themes and how investors can best position themselves to take advantage of them. Here are the highlights. For further information about any of the funds mentioned, please speak to your Investment Manager. Dan Mahoney, Co-Head of Healthcare at Polar Capital
How much of a threat do virus variants pose to the post-pandemic recovery? Even as the original vaccines were being developed, there were some concerns that their clinical efficacy would not be matched in the real world. In practice, however, they are protecting people well so far. The issue of virus mutations will, nonetheless, hang over us for some time. My view, based on my work as an immunologist earlier in my career, is that the T-cell response that vaccines trigger is crucial – it kills the virus, which is why the data, particularly once people are fully vaccinated, is so positive. I do not therefore expect mutations to have much of an impact in the short-term at least. I accept that some of them are capable of effecting what is called the ‘antibody response’, making some variants more transmissible from one person to another. However, the vaccines that are already available should continue to substantially reduce hospital admissions and deaths.
How is the sector responding to changes in healthcare delivery? The underlying changes were underway well before the virus struck but the difference is that they are now being implemented at pace. One is the ability to interact with a doctor remotely via 16 — Summer 2021
“telehealth”. This is moving the delivery of healthcare to cheaper and more efficient points of use, whether that is a GP surgery, a pharmacy or into someone’s home, all with the help of technology. This has big ramifications for investors. For example, the companies that are developing sophisticated outpatient treatment products, which facilitate local day surgery rather than lengthier and more remote hospital visits, should now be firmly on the radar. As fund managers we must therefore think about not just the range of treatments that may become available but also how they will be delivered.
Is there now a greater emphasis on preventative measures and diagnostics? Certainly. Part of that is down to the improved use of data to “triage” patients so that better decisions can be made about who needs acute care and when. Technology will help medics to keep people out of hospital who do not need to be there so that higher priority cases can be treated. A specific example of a firm in this space is Dexcom – their Continuous Glucose Monitor measures the sugar levels in the blood for a diabetic, helping them to manage the condition better themselves. Another would be RenalytixAI, a firm that focuses on people who have been diagnosed with type 2 diabetes. A small proportion rapidly develop chronic kidney disease, which presents an expensive treatment challenge. RenalytixAI’s diagnostic blood test markers, coupled with some clever AI-based analysis, help them to predict which sufferers should therefore be sent to a specialist as a matter of priority. This potentially game-changing approach is typical of the innovation we are seeing across the healthcare space.
Tom Slater, Head of US Equities at Baillie Gifford and co-Manager of the Scottish Mortgage Investment Trust
What do the latest global energy trends mean for investors? The current buzz-phrase “energy transition” describes a process that will last decades. We are already using a lot less energy than many predicted at this point in our economic development. That is being reflected in the energy intensity of GDP growth, which has slowed massively, as rising costs from conventional sources have collided with big environmental concerns. Meanwhile renewable prices keep dropping – solar energy-generation costs have fallen by about 20% a year for the past decade. Elsewhere, the cost of storing energies in batteries has declined by around 16% for every doubling of global capacity. The result has been an explosion in demand. From an investment perspective, however, there are several challenges. Spotting the emergence of new ways of doing things does not create an automatic investment case – we also need to be able to identify the lowest price producers that have a sustainable competitive edge. Take Tesla, which we have owned for most of the past decade. They have successfully shown that there is a huge latent demand to be tapped for electric vehicles (EVs) provided the product and the process needed to manufacture at scale are right. However, success inevitably breeds competition. That is why we also own NIO, one of the largest manufacturers of EVs in China. The Chinese market is hugely
