In this month’s article, Associate Director Claire Jervis looks at the healthcare sector and the reasons behind its challenging performance. She discusses the impact of Trump’s policies on pharmaceutical companies and how our portfolio is positioned to navigate this difficult geopolitical environment.
Market Review
April began with an unusually dramatic market moving event. US President Donald Trump dubbed 2 April “Liberation Day” and unveiled a schedule of tariffs to be levied on all the US’s trading partners.
A wide variety of global asset markets promptly sold off, including equities. They recovered somewhat through the month as the administration walked back some of the more extreme elements of the plan. The MSCI World Index of stocks ended down -1.7%. But measures of volatility hit highs not seen since the pandemic, business and consumer confidence fell heavily, and bond yields rallied sharply as the prospect of tariff-driven inflation and political control of interest rates spooked investors.
These financial market ructions were matched by industrial challenges from some of the other pieces of the Trump policy programme, particularly in areas related to sustainability. These continued at a hectic pace, and included direct interventions to halt the fully-permitted Empire Wind offshore wind farm in New York, as well as the approval of the latest generation COVID-19 vaccine.
Fund Review
The Fund was hit by both the market turmoil and the Trump administration’s specific challenges to the sustainability agenda, ending down 2.9%.
The Health theme was the biggest negative contributor to returns. The strategy includes several companies involved with the discovery and development of new therapies. These are challenged by the potential for radical changes to the operation of the Food and Drug Administration, the National Institutes of Health, and other key organs of the US scientific establishment. The month’s two largest negative individual contributors were life science tools companies Agilent and Thermo Fisher Scientific. We think that the long-term potential for scientific innovation is not fully factored into their current share prices.
Environmental Services was the second biggest negative thematic contributor to returns. Paper and packaging producer Smurfit Westrock, in the theme, was the third largest negative contributor. Packaging is economically sensitive, so the uncertainty about economic growth weighed on the stock. Investors may also have been wary of its susceptibility to tariffs, although we think that these are overdone. More generally, we think the potential for significant synergies from the combination of Smurfit Kappa and Westrock make the stock attractive at its current price.
The best positively contributing theme was Safety. MSA Safety had a strong month and reported healthy earnings, demonstrating its strong defensive qualities.
Outlook
The dramatic stock market movements since January reflect the considerable economic uncertainty brought about by the Trump administration in the USA. The rate of policy change has been breathtaking, and its scope wide-ranging.
Our impact investing markets had already been heavily hit by the dramatic changes in the policy framework. These include changes in healthcare, environmental protections, clean energy, and sustainable transport, amongst others.
It may seem surprising, then, that our confidence in the prospects for the strategy remains very strong. But current valuations are extremely depressed, with stocks now starting to price in a general recession, in addition to severe challenges to sustainability industries.
In our view, this dramatically overstates the case. The science behind our thematic drivers is well established. The capabilities of the technologies our companies produce are well-proven, and the need for them is increasingly apparent. As we have long known, political support alone cannot deliver sustainable changes to the economy. But by the same token, artificially constructed attempts to resist change will not succeed either.
The coming months are likely to see ongoing volatility as the policy moves play out. But with a patient approach, we believe the rewards for sustainability investing will be clear.
By Claire Jervis
If you have been following our commentary over the last year, you will know that our holdings in the healthcare sector – in particular, pharma companies and their suppliers – have experienced challenging performance.
In 2021, these companies were heroes. Thermo Fisher produced more Covid tests than any other company in the world. AstraZeneca manufactured a Covid vaccine that helped get us out of the pandemic’s grip. ICON, a clinical research organisation, partnered with Pfizer to progress their vaccine’s clinical trials at unprecedented speed.
But much like any machine that is driven full throttle for too long, the pharma industry burnt out in 2022 following the enormous disruption from the pandemic.
Five years after our first lockdown, when will this industry find its ‘new normal’?
Health is wealth – or is it the other way around?
The average cost to develop a new drug is over USD$2 billion.1 For this reason, funding for biopharma research is the lifeforce of the industry. The more funding there is, the more work there is for companies like ICON and Thermo Fisher, and the greater the likelihood of a new drug making it to commercialisation.
We saw a massive influx of biopharma funding during the peak of the pandemic. This sharply tapered in 2022 as the world contended with higher interest rates and economic uncertainty, and as large amounts of funding had been brought forward to fight Covid.
In March, clinical research company IQVIA published their annual update on pharma R&D.2 We were strongly encouraged by growth in funding shown in their data, which implies a potential turning point for the industry.
Biopharma funding levels USD$ bn, 2015-2024
Trump’s policies may be a bitter pill to swallow.
While this data is encouraging, we cannot yet give the pharma industry a clean bill of health. Despite the often life-saving impact of many pharmaceutical therapies, these products have not been exempted from recent trade disruptions and the sector’s share prices have whipsawed as we await a likely implementation of US import taxes on pharmaceuticals.
Tariffs are not the only means by which the current administration has targeted pharmaceutical companies, cutting around USD$2 billion in funding to the National Institute of Health (NIH) in just 40 days.3 A ‘Most Favoured Nations’ policy, which aims to cut drug prices for Medicare patients, similarly seeks to cut American spending on healthcare.
Overall, however, the bigger force at play here is President Trump’s trade negotiations – his aim is to force Europe to carry a greater share of global R&D investment, and he hopes to achieve this by cutting US spending.
This has spooked the sector and has been a setback to what had looked like a healthy recovery in 2024.
Portfolio thoughts
Around 20% of our portfolio is in companies that create pharmaceutical therapies or provide services and support to healthcare R&D.
We do not invest directly in small cap biopharma companies, which are most vulnerable to funding cuts. Our larger pharmaceutical companies, such as AstraZeneca, are much better positioned to navigate this difficult geopolitical environment and fund their own R&D from their profits.
AstraZeneca will be able to manufacture most of what it needs on US soil, and the company continues on its mission to launch 20 new medicines by the end of the decade. They believe this will help them reach USD$80 billion in revenue by 2030.
However, our R&D service providers, such as ICON and Thermo Fisher, are experiencing second order effects from the difficult funding and political environment.
That said, the onward march of larger companies like AstraZeneca implies that there will remain healthy demand for these companies’ services in the years to come. AstraZeneca has a massive pipeline of new drugs currently in development, particularly in oncology, where their aim is for 50% of all cancer patients in 2030 to be treated with one of their medications.
While the pharma industry may not yet have found its ‘new normal’, we believe the pressing need for pharmaceutical innovation and the commercial opportunity for companies like Astra will create continued healthy demand and profit growth in this industry over the long term.
1 https://www.deloitte.com/uk/en/about/press-room/global-pharma-rd-returns-rise-as-one-glp-drugs-help-drive-forecast-growth.html
2 https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/global-trends-in-r-and-d-2025
3 https://www.reuters.com/business/healthcare-pharmaceuticals/trump-administration-health-research-cuts-total-18-billion-analysis-finds-2025-05-08/
Managing Director, Fund Manager
Managing Director, Head of Impact Research
The Pengana WHEB Sustainable Impact Fund invests in companies with activities providing solutions to sustainability challenges. WHEB have identified critical environmental and social challenges facing the global population over coming decades including a growing and ageing population, increasing resource scarcity, urbanisation and globalisation. The Fund invests in companies providing solutions to these sustainability challenges via nine sustainable investment themes – five of these are environmental (cleaner energy, environmental services, resource efficiency, sustainable transport and water management) and four are social (education, health, safety and well-being). WHEB’s mission is ‘to advance sustainability and create prosperity through positive impact investments.’
1. From August 2017, performance figures are those of the Pengana WHEB Sustainable Impact Fund’s class A units (net of fees and including reinvestment of distributions). The strategy’s AUD performance between January 2006 and July 2017 (shown in the shaded area in the chart) has been simulated by Pengana from the monthly net GBP returns of the Henderson Industries of the Future Fund (from 1 January 2006 to 31 December 2011) and the FP WHEB Sustainability Impact Fund (from 30 April 2012 to 31 July 2017). This was done by: 1) converting the GBP denominated net returns to AUD using FactSet’s month-end FX rates (London 4PM); 2) adding back the relevant fund’s monthly ongoing charge figure; then 3) deducting the Pengana WHEB Sustainable Impact Fund’s management fee of 1.35% p.a. The WHEB Listed Equity strategy did not operate between 1 January 2012 and 29 April 2012 – during this period returns are nulled. The Henderson Industries of the Future Fund’s and the FP WHEB Sustainability Impact Fund’s GBP net track record data is historical. Performance figures are calculated using net asset values after all fees and expenses, and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance. The value of the investment can go up or down.
2. The Fund incepted on 31 October 2007 as the Hunter Hall Global Deep Green Trust. The Fund was relaunched on 1 August 2017 as the Pengana WHEB Sustainable Impact Fund employing the WHEB Listed Equity strategy. This strategy was first employed on 1 January 2006 by the Henderson Industries of the Future Fund and currently by the FP WHEB Sustainability Impact Fund.
3. Annualised standard deviation since inception.
4. Relative to MSCI World Total Return Index (net, AUD unhedged)
* For further information regarding fees please see the PDS available on our website.
