Article08 Jan 2026

A more stable backdrop for healthcare - December Trust Update

James Douglas

Fund Manager

Gareth Powell

Head of Healthcare

Market and sector review

Global equity markets finished the last month of the year in slightly positive territory, with European and emerging market indices outperforming their US counterparts. From a sector point of view, financials, materials and industrials posted good returns while utilities, real estate, communication services and healthcare had a more challenging December. Within healthcare, pharmaceuticals, supplies and managed care eked out a positive performance, while facilities, healthcare IT, distributors and equipment were weak.

The macroeconomic picture in the US remains in flux, with data still confounded by the government shutdown earlier in the quarter. While we caution on drawing firm conclusions from the most recent data points, inflation appears to be under control, consumer spending is robust and GDP growth continues to surprise to the upside. However, the labour market appears to be deteriorating slightly, with the unemployment rate ticking up to 4.6%, mainly due to re-entrants and temporary layoffs. As anticipated, the Federal Reserve cut the benchmark rate by another 25 basis points¹ in December, but it is now expected to enter a ‘wait-and-see’ mode, with another cut not forecast until March 2026.

As for healthcare, the US administration struck another deal with the pharmaceutical industry. Amgen, Bristol Myers Squibb, Boehringer Ingelheim, Genentech (part of Roche), Gilead, GSK, Merck, Novartis and Sanofi all came to the table and inked agreements that were broadly similar to the ones signed previously by other pharmaceutical companies. In essence, these deals offer a tariff moratorium in exchange for lower prices in the Medicaid and cash-paying channels, and large investments into US manufacturing. These agreements show the US government understands the critical importance for the industry to be able to continue to invest in innovation but also that more equitable pricing is necessary to ensure more people can benefit from the products this innovation generates.

Finally, there was hope that US Congress would find a compromise to extend the so-called Affordable Care Act subsidies before sunsetting at the start of 2026. As a reminder, these subsidies allow a large swathe of the US population to take out healthcare insurance at significantly reduced prices. Unfortunately, no deal has been reached yet, although negotiations are ongoing. If the subsidies are indeed left to expire, there could be significant ramifications across various areas of the healthcare system: clearly a large increase in the uninsured population might translate into lower healthcare utilisation and higher delinquencies on healthcare bills, negatively affecting all those sectors which benefit from higher utilisation, such as facilities, equipment and distributors.

Fund performance and activity

The Company’s NAV declined by -2.6% in December, behind the benchmark, the MSCI AC World Daily Net TR Health Care Index, which declined -2.4% for the month (both figures in sterling terms).

Positive contributors relative to the benchmark in December were Teva Pharmaceutical Industries (Teva), Penumbra and EssilorLuxottica.

There was no thesis-changing news for Teva with the company continuing to enjoy positive momentum driven by greater appreciation for its expanding branded drug portfolio in areas such as schizophrenia.

US healthcare services company Cigna is not only attractively valued but is also taking bold steps to reduce the political risk associated with its pharmacy benefit management business.

Penumbra responded positively to more constructive views on the company’s near-term growth algorithm and late-stage pipeline with thrombectomy (blood clot removal). The Fund had no exposure to EssilorLuxottica during the period under review.

Negative relative contributors in the period under review were Novartis, Ottobock SE and Zealand Pharma.

The Fund had no exposure to Novartis, a stock that continues its positive momentum following an upbeat ‘Meet the Management’ event in late November.

German medical device company Ottobock, with a focus on prosthetics, has struggled following its recent IPO despite delivering a strong set of financial results in November. Importantly, our constructive stance on the company has not changed.

There was no thesis-changing news for Zealand Pharma, other than competition in the obesity space continues to intensify.

We added positions in ConvaTec Group, Roche, Cigna, IQVIA Holdings and Savara.

ConvaTec Group is enjoying positive earnings revisions, is attractively valued given the potential growth on offer and could be the beneficiary of an easing regulatory landscape in the US.

We added Roche following the announcement of positive data for a key oncology asset in the field of early-stage breast cancer. With further pipeline news flow to follow, the medium-term growth outlook for the company could be transformed.

US healthcare services company Cigna is not only attractively valued but is also taking bold steps to reduce the political risk associated with its pharmacy benefit management business. With the market appearing to model very conservative 2026 and 2027 earnings, the risk/reward feels compelling.

We added contract research organisation IQVIA Holdings given expectations that the year-end 2025 results look conservative especially given the broader business environment appears to be stable to improving.

Finally, Savara is a clinical-stage biotechnology company focused on rare respiratory diseases. The company’s lead product, molgramostim, is in Phase III development for a rare disorder called autoimmune pulmonary alveolar proteinosis, an autoimmune disorder that leads to a buildup of unwanted protein in the lungs.

We sold positions in Ascendis Pharma, Encompass Health, Apollo Hospitals Enterprise, Boston Scientific, Argenx and Insulet to fund the additions.

Outlook

Exiting 2025, absolute and relative performance for the healthcare sector really started to pick up and there were early signs of positive ETF inflows. For that enthusiasm to continue, the basic fundamentals of innovation, regulatory support and commercial execution are a prerequisite, but it will be positive revenue and earnings revisions that will be key to driving sustained, positive momentum.

1. A basis point is a common unit of measure for interest rates and other percentages in finance; one basis point equals 0.01%

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James Douglas, PhD
James joined Polar Capital in September 2015 and is a Fund Manager for the Healthcare team. He was appointed Co-Fund Manager for the Polar Capital Global Healthcare Trust alongside Gareth Powell in August 2019.
Prior to joining Polar Capital, James worked in equity sales specialising in global healthcare at Morgan Stanley, RBS and HSBC. James also has equity research experience garnered from his time at UBS, where he worked as an analyst in the European pharmaceutical and biotechnology team. Before moving across to the financial sector, he worked as a consultant for EvaluatePharma.
Gareth Powell, CFA
Gareth joined Polar Capital in 2007 to set up the Healthcare team. Prior to Polar Capital, Gareth worked at Framlington, where he began his career in investment management in 1999. Soon afterwards, he joined the Healthcare Team in 2001 and helped launch the Framlington Biotech Fund, which he managed from 2004 until his departure.
Gareth studied biochemistry at Oxford, during which time he worked at Yamanouchi, a leading Japanese pharmaceutical company (later to become Astellas). As well as this, Gareth worked for the Oxford Business School and various academic laboratories including the Sir William Dunn School of Pathology and the Wolfson Institute for Biomedical Research.