Written by Philip Van Doorn
Michael Taylor runs the Simplify Healthcare ETF, which donates its management fees to Susan G. Komen for the Cure to fund breast cancer research and support breast cancer patients. Is going.
The Simplify Health Care exchange-traded fund has grown to $136 million in assets in two and a half years. It’s never easy for an actively managed fund to outperform its benchmark or overall stock index, but the fund’s lead manager, Michael Taylor, has managed to do just that so far.
In an interview with MarketWatch, Taylor discussed the fund’s major holdings and pointed to the fund’s non-healthcare holdings, which he believes have the potential for exponential returns. said.
Simplify Health Care ETF PINK was launched on October 7, 2021, and the stock began trading the next day. The fund’s annual expenses represent his 0.50% of assets under management, and all net profits will be donated to Susan G. Komen for the Cure. Susan G. Komen for the Cure is a nonprofit organization dedicated to supporting breast cancer patients and funding research into breast cancer prevention and treatment. .
Although the fund’s management fees are donated, Mr Taylor said he is one of the top three shareholders and therefore benefits along with the fund.
As you can see below, PINK has performed well since its inception.
Early in his career, Taylor earned a master’s degree in biotechnology from Johns Hopkins University and worked on gene therapy research projects at GenVac, followed by a master’s degree in business from the University of Rochester and a career in financial management at Oppenheimer. I moved to Throughout his career, he has managed several healthcare fund portfolios and health-oriented hedge funds.
He described his approach to the Simplify Healthcare ETF as “unusual.” Not just in its stock selection, but in its ability to be more nimble than its competitors, who run much larger funds, to right-size their investment positions.
Before getting into Taylor’s comments on specific companies, here are the fund’s 10 largest holdings.
Company Ticker % of Simplify Health Care ETF as of March 28
Intuitive Surgical Inc. ISRG 9.5%
Sarepta Therapeutics Inc. SRPT 8.6%
Cigna Group CI 6.5%
PureCycle Technologies Inc. PCT 4.9%
Cooper Cos. COO 4.7%
Align Technology Inc. ALGN 4.6%
Merck & Co. MRK 4.6%
Eli Lilly & Co. LLY 4.6%
Shockwave Medical Inc. SWAV 3.6%
Thermo Fisher Scientific Inc. TMO 3.5%
Source: Simplify ETFs
Comments on 5 stocks
intuitive surgery
PINK’s largest holding is Intuitive Surgical Inc. (ISRG). Taylor believes the company’s revenue and profit estimates among analysts working at brokerage firms are too low because the company plans to bring new robotic surgery equipment to market this year. Intuitive trades at a valuation of 60.4 times the consensus earnings per share forecast for the next 12 months by analysts surveyed by FactSet, and at a price-to-sales ratio of 16.8 times. These are very high compared to the S&P 500 SPX’s forward P/E of 21.1 and the index’s forward price-to-sales ratio of 2.7.
According to FactSet, Intuitive’s average forward P/E over the past five years has been 50.8x. Turning to forecasts for the upcoming calendar year, the company is expected to increase its revenue at a compound annual growth rate of 13.9% from 2023 to 2025, with a projected EPS CAGR of 12.9%, based on consensus estimates. . These compare to the S&P 500’s expected sales CAGR of 5.3% and EPS CAGR of 12.3%.
Sarepta Therapeutics
The fund’s second-largest holding is Sarepta Therapeutics, Inc. (SRPT), which is awaiting Food and Drug Administration approval for a new treatment for Duchenne muscular dystrophy. Taylor believes the high cost of the treatment could cause the stock price to double, assuming the drug is approved. “Sarepta has an opportunity to get a label from the FDA to treat all of DMD, and DMD will be a $5 billion drug for most of the next few years,” he said. The company’s market capitalization is $11.6 billion.
If Sarepta doesn’t win FDA approval for the treatment of DMD, Taylor predicts the stock will fall 30%. However, he is confident that his paper will work. “And I’m treating it like it’s my money, so we have a big position,” he said. “Nothing to destroy us, but enough to give us significant benefits.”
Signa
The third largest holding in the PINK portfolio is Cigna Group (CI). The company is one of six S&P 500 companies classified by FactSet as a managed care provider (or health maintenance organization). What sets Cigna apart, Taylor said, is that nearly all of Cigna’s business is with commercial customers (employer-sponsored health insurance plans), whereas the other five companies focus on Medicare Advantage plans. It is said that it comes from Cigna stock has returned 44% over the past year.
Cigna stock’s forward P/E ratio is low at 12.4 times. “This sector is undervalued because it is ignored by investors. There is always an immediate threat to the nation’s health care,” Taylor said. He said competing healthcare fund managers “made the wrong decisions” in their analysis of the HMO space because they “didn’t know which funds were going to perform well in that space and be able to scale.” He added that this was because there was no such thing.
Eli Lilly
PINK owns shares in Eli Lilly & Company (LLY), whose stock price has soared due to the success of the company’s GLP-1 drug for diabetes treatment and weight loss. But Taylor is avoiding Lilly’s biggest competitor, Novo Nordisk A/S (NVO). This is because “prescription trends for GLP-1 preparations do not match expectations” in the latter US market. He also said, “We believe Lilly has a better molecule, better safety and better efficacy.”
He sees a long road ahead because GLP-1 drugs are currently covered by Medicare for diabetes treatment, but not yet for patients who need to lose weight. With so many people at risk for costly medical problems caused by obesity, this drug category is becoming more popular as Medicare and insurance companies recognize the benefits of covering GLP-1 for more purposes. could expand significantly, Taylor said.
non-medical play
In healthcare, and especially in biotechnology, binary events can generate large profits for investors. A company’s stock price can soar as it approaches expected FDA approval of a new drug, treatment, or device, but can plummet if it fails to win approval.
The Simplify Healthcare ETF can invest up to 20% of its portfolio outside of healthcare, and Taylor cited PureCycle Technologies (PCT) as an example of such a stock. And it’s certainly a dichotomy. The company’s market capitalization is less than $1 billion. The company has licensed technology from Procter & Gamble (PG) to enable the recycling of polypropylene.
Polypropylene is a commonly used plastic that people often put in their recycling bins. Despite being separated by waste disposal companies, this type of plastic is not recycled. PureCycle expects its Ironton, Ohio, facility to be built in 2023 and fully operational this year.
”[PureCycle] “We are on the verge of major global expansion, with three factories in Asia, one in Europe and two in the United States,” Taylor said. Additionally, demand for PureCycle’s services is “unexpected” and the Ironton plant has a “20-year backlog” of business.
he said he doesn’t know yet whether it is [PureCycle’s] Recycling polypropylene into industrial pellets will ultimately yield better profit margins than manufacturers producing new plastics from oil. But he also called his PureCycle “a pure solo play.” [intellectual property] moat. ”
”[PureCycle] We expect this to become 50 baggers over the next 10 years, hence the pink color. A “50 bagger” means the stock could go up 50 times, Taylor said.
Performance comparison
The Simplify Health Care ETF has been around for less than three years, so we don’t have much time to compare its performance to benchmarks or other funds. Therefore, the table below includes not only the total returns from the time the fund began trading on October 8, 2021 through Friday, but also total returns for other periods, most of which are this relatively Excludes new funds.
Performance comparisons include the Fidelity MSCI Healthcare Index ETF FHLC, which is passively managed to track the MSCI USA IMI Healthcare 25/50 Index. The index is designed to capture the performance of large-cap, mid-cap, and small-cap U.S. healthcare stocks.
This table also includes the performance of the Healthcare Select Sector SPDR ETF XLV, which tracks the healthcare sector of the S&P 500, and the SPDR S&P 500 ETF Trust SPY, which tracks the entire S&P 500. At the bottom of the list, Taylor’s two biggest active management competitors are the $15.4 billion T. Rowe Price Health Sciences Fund’s Class I stock THISX, which has the lowest management fees; ) and the $7.9 billion Fidelity Select Healthcare Portfolio FSPHX.
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04/06/24 0711ET
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