Mid-Year Market GPS: Disruptive Forces

 In Market and Investment Insights

Which themes are shaping the 2019 investment landscape? Read our investment teams’ thinking in the Janus Henderson Mid-Year Market GPS.

Portfolio Managers Andy Acker and Denny Fish explore disruptive forces in health care and technology.

Disruption is being felt across industries and geographies and proving to be a differentiator in the long-term performance of investors’ portfolios. Such rapid and widespread change is creating new investment opportunities but also significant risks. For the first half of 2019, these trends continued, particularly in the technology and health care sectors.

Technology: The Long Game

Denny Fish, Portfolio Manager, Technology

The technology sector is writing the operating system for a digital global economy. But as the first half of 2019 showed, the sector itself is an evolving playing field, which can increase the breadth of potential outcomes. Internet platforms, for one, have faced greater calls for regulation and potential antitrust investigations, trends that could persist for the near term. Meanwhile, semiconductors have been caught up in escalating trade disputes and tech wars, whipping around these stocks.

We cannot forecast the outcome of trade spats or how tight the regulatory noose might be pulled. But the shift to a digital economy is continuing, and the opportunities created by this transition – especially in cloud computing, the Internet of Things, artificial intelligence and 5G – is likely to be a significant source of earnings growth over the long term. Consequently, we believe investors should keep business cycles in perspective, even as regulatory and supply-chain details are hammered out over the near term.

Semiconductors: Volatility Hits Stocks, but EPS Growth Is Expected to Continue

Source: Bloomberg, data as of 5/10/19

Health Care: Medical Advances and M&A

Andy Acker, Portfolio Manager, Global Life Sciences

Proposals for drug pricing reform and a single-payer medical system in the U.S. weighed on health care stocks in the first half of 2019. But these headwinds have not gotten in the way of innovation. On the contrary, advances in genetic sequencing, new modalities for targeting disease and accommodative regulatory paths are helping fuel medical breakthroughs – many of which are being spearheaded by small and midsize companies. Consequently, we have seen a surge in mergers and acquisitions (M&A), often at significant premiums.

Innovation looks set to continue. In the coming months, we expect results from landmark studies for cancer-fighting immunotherapies, while new technology is emerging in medtech, such as robotic-assisted surgeries. And in May, the Food and Drug Administration approved the second gene therapy in the U.S., a treatment for spinal muscular atrophy, the leading genetic cause of infant death. In our view, these and other advances could lead to significant growth for the companies developing the products, as well as fuel additional M&A.

A Surge in M&A

Year to date, the value of announced biotechnology and pharmaceutical deals already equals 55% or more of total M&A in each of the last five years.

Source: Bloomberg. YTD as of 5/6/19

Mid-Year Market GPS Webcast: the themes shaping the 2019 investment landscape

The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

Concentrated investments in a single sector, industry or region will be more susceptible to factors affecting that group and may be more volatile than less concentrated investments or the market as a whole.
Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.
The health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.

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