TIP SHEET: Live Oak Health Fund Finds Value In Neglected Areas

26th Jul 2010 20:00

By Thomas Gryta Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Mark Oelschlager treads a different path in running the Live Oak Health Sciences Fund (LOGSX). Unlike some health-care fund managers, he didn't come from a career in the pharmaceutical industry or a medical background, and he also tries to avoid trends that might be attracting other investors in the sector. He tends to look for areas in the sector being avoided, or considered unattractive, by other investors. He comes up with a realistic scenario for the involved companies and contrasts it with what is being priced into the stocks. "You never know where you are going to find an idea," Oelschlager said. "Sometimes there are areas within health care that people neglect, or don't want any part of, and sometimes those reasons can be misplaced. So if you are a long-term investor, it can present opportunity," he said. The fund is up 15% in the past year as of Friday, outperforming its peer category by nearly seven percentage points and falling 0.4 percentage point below the Standard & Poor's 500 index, assuming reinvestment of dividends, according to research firm Morningstar Inc. The fund has a five-year annualized return of 1%, besting the S&P 500 by one percentage point, but slightly underperforming its category. The Live Oak fund's long-term perspective is reflected in its low turnover, which keeps transaction fees low and reduces taxable gains for its investors. Furthermore, Oelschlager believes that the best investors over the long-term are those that don't trade often. "It saves someone from themselves...If you're always trading and reacting to the latest piece of news, a lot of times you are going to be over-reacting and making changes when they aren't warranted," he said. He believes one group that offers a lot of value is the European pharmaceutical companies like GlaxoSmithKline PLC (GSK, GSK.LN), Sanofi-Aventis SA (SNY, SAN.FR), Novartis AG (NVS, NOVN.VX) and AstraZeneca PLC (AZN, AZN.LN), which are all trading at eight to 10 times their estimated 2010 earnings. At current levels, the valuations assume there will be no growth, Oelschlager said. "I realize that they have some issues and there are some concerns with the pipelines," he said. "I think things are likely to play out better than what is being priced in the stocks right now." Furthermore, those stocks are suffering from broad investor concern about the economy and European sovereign debt crisis, something that he sees as an over-reaction. Another area of Live Oak's concentration is drug-distribution companies such as AmerisourceBergen Corp. (ABC), McKesson Corp. (MCK) and Cardinal Health Inc. (CAH). Oelschlager believes the group is also trading at attractive price-to-earnings multiples when compared with their business prospects. "They aren't going to be very impacted by health-care reform. If anything it will help them," he said. He notes that they provide an essential service, but operate on a scale that "makes it hard for competitors to ever encroach." While Oelschlager tends to concentrate on investing in larger companies, he is open to investing in smaller companies, assuming they aren't too volatile. "I shy away with getting involved with the small biotechs because they are so risky," he said. "You tend to either be a big winner or big loser...and in a concentrated portfolio, it can really have an outsized impact on performance." (Thomas Gryta covers the biotech and generic-drug industries for Dow Jones Newswires. He can be reached at 212-416-2169 or by email at [email protected].) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 26, 2010 15:00 ET (19:00 GMT)