Live Oak Health Sciences Fund
August 2011
It may not feel like it, given the recent correction, but the S&P 500 returned over 18% for the twelve months ended August 31. The healthcare sector, as measured by the S&P 500 Health Care index, performed even better, returning over 21%. Live Oak Health Sciences Fund bested both, returning over 28%. (See standardized performance through June 30, 2011 below.)
It is unusual for the healthcare sector, known for its stability, to outperform in a strong market. Throughout the year investors became more comfortable with the ramifications of healthcare reform and found it difficult to ignore the appealing valuations.
Strong performers for the past year included institutional pharmacy Pharmerica, which bounced off oversold levels and is now being pursued as an acquisition candidate by a competitor, and Biogen Idec, whose new drug for Multiple Sclerosis, BG-12, which can be taken orally, showed excellent results in clinical studies. Pharmaceutical distributors and managed care, two areas of focus for the portfolio, also performed very well.
Laggards included drug makers Teva Pharmaceutical, whose shares suffered from concerns about future competitiveness of its Multiple Sclerosis franchise, and AstraZeneca, who reported disappointing clinical trial data for a new drug.
Our management style remains long-term focused, and turnover was very low for the last year. That said, an area into which we made a strong push during the fiscal year is medical and surgical products. This group became oversold due to slowing demand that is likely resulting from the weak economy. The reduced expectations set up the potential for nice gains in the shares once demand returns, a scenario we think is likely. Additionally, to the extent medical procedures are being postponed for economic reasons, there is some pent-up demand that likely will be realized in the future.
The healthcare sector continues to offer a slew of investment opportunities - companies that generate strong returns, have good unit growth and pricing power, pay sizeable dividends, and trade at attractive valuations.
Best regards,
Mark Oelschlager, CFA
Portfolio Manager
Live Oak Health Sciences Fund's standardized performance for the period ending June 30, 2011: 9.55%, 33.54%, 8.71% and 4.76% annually for 1, 3, 5 and Since Inception periods respectively. Fund inception date is June 29, 2001.
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.
The Advisor has contractually agreed for a period of one year from the date of the prospectus to waive all or a portion of its fee for the Fund (and to reimburse expenses to the extent necessary) in order to limit Fund total operating expenses to 1.35%. The Total Annual Fund Operating Expenses for LOGSX is 1.38%.
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.
Live Oak Health Sciences Fund held the following percentage weightings as of 6/30/11: Pharmerica 3.4%, Biogen Idec 6.0%, Teva Pharmaceutical 2.7%, AstraZeneca 3.6%,.
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