Healthcare hedge fund Rhenman still buoyant on sector, as flagship strategy advances in January

Healthcare

The healthcare sector can expect a “reasonably stable political environment” this year, according to healthcare-focused specialist hedge fund Rhenman & Partners Asset Management, whose buoyant stance comes after its flagship strategy finished last month in positive territory.

The firm’s flagship Rhenman Healthcare Equity Long/Short hedge fund rose 1.32 per cent in its main euro share class last month, as its SEK-denominated tranche grew 1.81 per cent.

The strategy – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company stocks – was able to generate profits across three of its four main areas of focus last month.

But with health insurance stocks taking a beating in January, positions in service sector names proved a drag on performance, the firm said in a client update on Tuesday. 

Among the fund’s best performers in January was Teladoc Health, a large US telehealth and telemedicine provider, which has benefited from the rise in virtual healthcare during the coronavirus pandemic. Last year’s merger with Livongo helped Teladoc further cement its market position in chronic diseases and open up greater market potential.

“It is becoming increasingly clear that the changes we have seen in how care is delivered during the pandemic, including the fundamental role of digital health care, are here to stay,” Rhenman said.

On the downside, US biotech name Apellis Pharmaceuticals, whose stock soared some 80 per cent last year, dipped slightly in the early new year ahead of clinical trial results, while BioMarin Pharmaceutical, another US biotech name, saw its share price fall after approval for its gene therapy treatment was delayed.

Reflecting on the outcome of the US Senate elections, the Stockholm-based manager said the lack of a convincing majority is a “relatively favourable situation” for healthcare, with substantial political reforms and funding increases ultimately needing a high degree of political agreement.

Looking ahead, the “even party lines in the US Senate could favour our sector,” the firm observed, suggesting healthcare “will face a reasonably stable political environment up until the next elections, which are congressional elections in autumn 2022.”

Rhenman, whose flagship fund rose more than 17 per cent last year, now believes that low valuations in the major traditional healthcare companies could provide good support should projected economic growth fall short of current expectations.

“However, the market has so far this year shown more interest in smaller companies, as these promise higher growth and also represent potential acquisition targets,” the commentary noted.

“Although cyclical equities might outperform our sector, we should nevertheless have a good chance of reaching our return target of 12 percent.”

Rhenman added: “The sentiment for our companies and subsectors is relatively good, and even better than our assessment prior to the US elections when political uncertainty was at its highest. We look forward to the 2021 investment year ahead.”