Commentary

The Fund declined 2.2% in September. Leading the decline was US optical communications equipment Ciena, down 28%, after reporting results in which the company guided for soft revenues for a few quarters as telecom carriers slow their spending after extremely high levels of spending in the first half of the year. Data traffic continues to grow at about 30% per annum so at some point growth will resume. US Optical component producer Lumentum fell 10% following Ciena’s announcement however we feel the company is unlikely to experience any weakness as Apple’s upcoming launch of its new iPhone will lead to strong sales of 3D sensing related components. A new rear-facing 3D sensor will be added to the high-end models and front-facing face ID sensors will also be upgraded leading to a substantial boost for the company

Australian molecular test company Genetic Signatures declined 25% after a strong prior month as Covid cases in Australia declined along with testing volumes. We believe rising cases of Covid in Europe and the USA will however lead to strong sales of Covid tests for the next year or more even if a successful vaccine is announced later this year.  A vaccine is unlikely to be fully rolled out before mid next year and, even then, governments will want to ensure that ever-present respiratory diseases such as influenza and colds are not in fact Covid. Post-Covid the company will be left with a large global install base of testing machines which will be used for many other tests such as influenza, sexually transmitted diseases, gastric bugs, and drug-resistant antibiotics.

Danish vaccine producer Bavarian Nordic fell on little news as did US gene-editing company Sangamo.

On the positive side, Japanese online retailer Rakuten rose 26% as the new Japanese Prime Minister is seeking to drive to lower mobile phone prices in the country. Rakuten is the new fourth market entrant in the mobile communication market and has launched phone plans which are some 40% cheaper than rivals. It is thought that the new government will find ways to support this operator in an attempt to force others to follow. Another factor leading to strong performance was that Rakuten has hugely underperformed every other online retailer globally due to concerns over the losses in its telecom business, however, the market is now refocusing attention on its core business which we believe is very undervalued.

US gene therapy company Axovant rose 60% in the month over expectations for results in its upcoming Parkinson’s disease study. The shares had been very depressed.

German drug and medical equipment company Merck KGA rose 11% after hosting an analyst day discussing its business. The company is one of the top four companies that dominate the market for equipment used to produce biological drugs, including vaccines.  It stands to benefit greatly from the many Covid vaccines being produced, as does another major portfolio holding Bio-Rad which owns 34% of Sartorius, one of the other major equipment producers.