Live Oak Health Sciences
Quarterly Commentary
December 2011
2011’s up and down market continued through the end of the year, as a fourth quarter rally followed the correction in the third quarter. Economic prospects brightened, which drove cyclicals higher. Not surprisingly, the healthcare sector lagged in this strong market, but still posted healthy gains.
Strong performers in the quarter included biotech titans Biogen Idec and Amgen. Biogen received more good clinical news on its new drug for Multiple Sclerosis.
The pharmaceutical distributors lagged during the quarter. This was not due to anything specific, but rather just some consolidation for a group that has performed very well in recent years.
Recently we have been finding opportunity in life science tools, an area that was once a major focus of the fund before we reduced our exposure when the risk-reward deteriorated.
We believe the healthcare sector continues to offer a slew of investment opportunities - companies that generate strong returns on capital, have good unit growth and pricing power, pay sizeable dividends, and trade at attractive valuations.
One area where we have limited exposure is small biotech, whose value as enterprises typically rides on the results of one or two clinical trials. In the past we have been burned several times on these developmental stage companies, whose stories sounded so compelling but whose shares crashed when new compounds did not meet expectations when tested in trials. Given their track record, these small biotech “lottery tickets” seem to offer the unappealing combination of high risk and low return. Our general avoidance of this area enhances the stability of the portfolio.
As 2011 drew to a close, it marked the fourth consecutive year in which the fund has posted a return higher than its peer group average. We believe this success is due to our long-term focus and preference for overlooked areas within healthcare and will continue to adhere to this approach going forward.
Best regards,
Mark Oelschlager, CFA
Portfolio Manager
Live Oak Health Sciences Fund's standardized performance for the period ending December 31, 2011: 10.07%, 18.05%, 6.71% and 3.96% 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 12/31/11:
AmerisourceBergen Corp. 4.80%, McKesson Corp. 4.44%, Cardinal Health, Inc. 4.32%, Pfizer, Inc. 4.26%, Sanofi ADR 3.84%, Biogen Idec, Inc. 3.83%, Johnson & Johnson 3.80%, Becton Dickinson and Co. 3.75%, AstraZeneca PLC ADR 3.75%, PharMerica Corp. 3.61%.
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