Columbus Circle Investors began life in 1975 and has since grown to become a $15 billion institutional money manager. The firm runs seven strategies one of which is the $1 billion CCI Healthcare strategy.

According to a 2016 interview with the Columbus Circle Investors Healthcare team published in the Hedge Fund Journal, CCI Healthcare “identifies companies undergoing change, where that change is not appreciated by investors.” More specifically, the team aims to “identify change that can be thematic or company-specific that leads, on the long side, to accelerating sales, improving gross margins and cash-flows and where investors do not realize the potential value,” according to senior managing director and portfolio manager, Oliver Marti.

And according to the firm’s second quarter 2017 healthcare industry review and outlook reviewed by ValueWalk, Marti and team are still finding plenty of value in the health sector today.

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Healthcare policy clarity

 

Columbus Circle Investors - Healthcare Policy Clarity Will Result In Renewed Investor Flows

Even though the S&P 1500 Healthcare Index (with income) is up 16.47% year to date, the team believes that "valuations continue to look attractive" and "further clarity regarding healthcare policy around pricing," should allow generalist investors to feel comfortable investing in the sector. On the topic of the Affordable Care Act, Columbus Circle Investors expects “Repeal and Replace” to fail with the focus shifting to additional federal funds near-term to stabilize the current ACA marketplace, which would give "clarity regarding healthcare policy around pricing."

For biotech stocks, a lot rests on how far policymakers get with healthcare and tax bills during the remainder of this year. Congress will either pass a new healthcare bill or move on to tax reform in August/September, which should help bring investors back to the sector, especially if foreign cash repatriation is included in the tax bill. The FDA has been accelerating product approvals, with more drugs approved during the first half of than in all of 2016.

CCI's team sees value in health care, although some sub-sectors are more attractive than others. Supply chain services stocks, for example, are expected to struggle as the "threat from Amazon will remain an issue for stocks in the sector for the foreseeable future." Even though Amazon is not expected to enter the pharmacy and drug distribution spaces in the near-term, there's still an overhang on the industry -- as with all other retail sectors currently.

The managed care organizations sub-sector has one of the best outlooks. Columbus Circle Investors does not believe health care reform is material to most managed care companies, "with the exception of certain Medicaid focused names." As a result, solid earnings reports from this sector are expected during the second half while the potential for M&A and additional capital deployment is high. Another sub-sector the team at CCI is positive on is life science tools:

"As we enter 3Q’17, we expect life science tools industry fundamentals to remain strong, supported by healthy global demand. Also, strong balance sheets offer capital deployment upside and we expect new product cycles to drive accelerating revenue growth. Biopharmaceutical and China demand should remain robust, and with guidance suggesting a moderation in growth from these areas, we feel upside potential exists. "