Live Oak Health Sciences Fund
Second Quarter, 2011
By Mark Oelschlager, CFA
Portfolio Manager
Optimism about the economy in the first quarter turned into pessimism in the second quarter, as higher oil prices, the effects of the Japan earthquake, and unusually poor weather in the US helped drive leading economic indicators lower. This caused a rotation into defensive sectors, one of those being healthcare. We have pointed out many times that healthcare tends to outperform when the market or economy are sluggish, and this time was no different. While a late-June rally got the broader market close to even for the quarter, healthcare stocks posted impressive gains – and the Live Oak Health Sciences Fund fared even better.
The strength in the sector was broad-based, with pharmaceuticals, biotech, managed care, and medical devices all generating excellent returns. The portfolio has exposure to all of these areas.
The star of the quarter was Biogen Idec, whose new drug for Multiple Sclerosis, BG-12, showed excellent results in clinical studies. This is an exciting time for MS patients, as the biotech industry is now developing therapies, BG-12 being one of them, that can be taken orally rather than by injection. Elsewhere, the managed care stocks continued to perform well, as growth in claims remains slow.
Laggards included Teva Pharmaceutical, whose MS drugs figure to be hurt by the success of Biogen’s. Fortunately, Teva’s business is broad enough that it should still be able to grow at a nice rate. Medical device maker Medtronic sold off on allegations of conflicts of interest with doctors that use its spinal surgery products.
We continue to search for growth opportunities, particularly in overlooked areas, while trying to limit risk.
Best regards,
Mark Oelschlager, CFA
Portfolio Manager
Live Oak Health Sciences Fund
This manager commentary represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.
Past performance is no guarantee of future results. Mutual fund investing involves risk, including the possible loss of principal. Funds that emphasize investments in technology generally will experience greater price volatility. There are additional risks associated with investing in a single-sector fund versus a more broadly diversified portfolio, including greater sensitivity to economic, political, or regulatory developments impacting a sector.
Live Oak Health Sciences Fund held the following percentage weightings as of 6/30/11: Biogen Idec 6.0%, Teva Pharmaceutical 2.7%, Medtronic Inc. 2.5%.
CFA is a trademark owned by the CFA Institute.