drawing-portfolio-analysis

Investors should consider all-cap growth strategies.

They benefit Canadian clients, in particular, because exposure to all-cap growth can help diversify their portfolios, says Michael Orndorff, vice president and portfolio manager at American Century Investments. He co-manages the Renaissance U.S. Equity Growth Fund.

Canada is heavily exposed to the financial, energy and materials sectors, he adds, while U.S. companies are tied to the growing technology, consumer and healthcare sectors.

Read: All-cap approach reveals hidden gems

“All-cap growth [strategies] provide investors with the opportunity to participate in U.S. growth-stock investing, up and down the market-cap spectrum,” says Orndorff. They can choose from a larger number of both established and newly-IPOed businesses.

Market opportunities

Currently, Orndorff’s focused on U.S. healthcare sector prospects.

“In terms of healthcare cost containment…[expenses] have been running ahead of GDP for a number of years,” he says, but now “companies are very focused on how they can reduce the overall expenses of procedures, drugs and pharmaceutical costs.”

Read: Help clients dissect the healthcare sector

One of the best ways for investors to participate in this trend, he adds, is through pharmacy benefit managers, known as PBMs. They’re “designed to help contain the cost of pharmaceutical increases.”

In the U.S. right now, he finds many healthcare companies “are increasingly doing what’s called cost shifting, [where] they’re moving their higher deductibles associated with healthcare costs [and are] increasingly making the consumer more aware of the costs.”

“We’re early on in this transition of cost shifting from the employer to the employee, [but it] will make everyone [more] focused on how they can control costs,” says Orndorff.

Further, he says the new Affordable Care Act will have an impact on the sector’s performance, and on this burgeoning trend.

Read: U.S. healthcare and housing outperform

“PBMs are well-positioned to take advantage of the Affordable Care Act that really starts to kick in [in the U.S.] at the beginning of 2014,” says Orndorff. You’ll have new members being insured for the first time…[There will be about] 30 million additional citizens being covered by healthcare for the first time.”

There will be “some first-time need in terms of medical care and pharmaceutical costs,” he adds, and these will need to be managed, he adds.

Read: Healthcare system must be reformed, says report, for more on Canada’s health landscape

Investment analysis tips

When analyzing companies for clients, you can use the same general investment process for both established and new businesses, says Orndorff.

His team “looks for evidence of improving fundamentals. Even more important is the sustainability of that improvement.”

And since all companies typically run into periods where their fundamentals are pressured, Orndorff adds, managers must analyze whether those trends are temporary or long term to determine if clients should hold or sell.

In situations where the pressure will only last for a quarter or two, he says he typically hold the companies and sometimes adds to his investments. But “if the slowdown is more permanent and sustainable in nature, that’s where…[we] reduce our position size or even exit altogether.”

Read:

The evolution of asset pricing

Inefficient markets leave room for active management

Lessons in value investing

Originally published on Advisor.ca

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