Strong start, but unknowns persist
The rebound in equities in 2019 has been led by the
information technology sector, similar to the past few
years. The bounce-back within technology has been
widespread, regardless of market capitalization or
subsector. However, recent turmoil surrounding U.S.-
China trade relations, as well as reported antitrust
investigations into four of the largest tech companies
have led to an uptick in volatility.
Despite the ebb and flow of U.S and China trade
discussions, we remain optimistic of an eventual
agreement in the second half of 2019. This action is in
the long-term best interests of both countries and we
believe that progress towards an agreement would be
supportive of financial markets.
The technology sector is also facing implications from
the U.S. government’s alleged antitrust investigation
into four of the largest technology companies – Apple,
Amazon, Facebook and Alphabet. The results of this
action won’t be known for months, if not years, so we are
assessing the situation in a long-term context. Our belief
is that the underlying reason these companies have been
successful is because they create products and services
people demand. While short-term noise may increase,
we believe the long-term secular opportunities created by
these companies continue to be attractive.
Seeking innovation beyond tech
We pursue an actively managed, risk-controlled portfolio
of investments in what we deem attractive companies:
Those with innovation-driven differentiation and
sustainable levels of profitability and growth that
operate within three key sectors of the economy,
including technology, health care and applied science
and technology. Our approach of focusing on technology
companies as well as those that use science and
technology as agents of change is a key differentiator of
the Fund versus its peers.
While trade tension and government investigations
may create unknowns, the secular drivers of technology
and health care are diverse and growing. We believe
we are at a unique crossroads as innovation in science
and technology converge at an unprecedented pace. In
fact, wide-ranging innovation is enabling and impacting
nearly every industry across the globe. We view this
innovation-driven disruption as a positive in the fact
that it is helping create new industries and investable
With that in mind, the following analysis highlights
key growth drivers for technology and health care,
how the Fund is positioned to take advantage of these
opportunities, and our outlook moving forward.
Semiconductors have long been a key allocation within the Fund as we believe the emergence of new secular
growth opportunities should continue to support above-market returns for the space. We believe semiconductors
should be driven by emerging growth areas, such as the Internet of Things (IoT), autos, machine learning, 5G,
industrial and data centers. The IoT is one growth driver expected to have meaningful impact in the coming years. In
fact, Intel estimates that roughly 200 billion “smart devices” will make up the IoT by 2020, up from 15 billion in 2015.
Data expected to be generated from these devices is reflected in Graph 1 below.
The proliferation of mobile payments and widespread use of card-based payments are promising secular trends for
processors of payment transactions. Business Insider Intelligence estimates mobile payment growth to reach $357
billion by 2021, accounting for 45% of e-commerce sales. We continue to be optimistic on the future of this space.
In our view, health care, notably biotechnology and pharmaceuticals, is among the greatest innovators and early
adopters of new science and technology. We believe the next few years should be particularly constructive for
biotechnology stocks and we have added several names in this area, as we expect significant innovation and
In particular, we are monitoring revolutionary advances in gene therapy, a cutting-edge technique to create and
administer medicine. Much of it started with mapping the human genome 18 years ago, which was a seminal event.
While it was exciting, no one could afford gene sequencing due to computing power limitations – the cost exceeded
$1,000,000 roughly 10 years ago. With the technology and vast quantity of information now available, it can be done
more cheaply and accurately, as shown in Graph 2 below.
Inexpensive gene sequencing allows companies to dig deeper into genetics and find ways to treat patients based
on their individual genomes. Gene therapy involves administering a medicine that has been pre-engineered to
selectively impact particular cellular genetics in a single dose to patients. By influencing specific genes, cells may
be “reprogrammed” to recognize particular cancers or other damaging diseases. Despite the inherent risks of gene
therapy, we believe there is upside for leading companies to offer significant returns.
As a percent of the Fund’s equity assets as of 06/30/2019 vs. S&P North American Technology Index.
Graph 1. Data demand means opportunity for semis
The Fund’s overweight position in semiconductors is supported by secular
growth drivers, including future data creation.
Graph 2. Innovation transforming gene therapy
Gene therapy has benefited from rapid innovation, which has driven the cost
of gene sequencing to roughly $1,000 per sequenced genome.
Source: National Human Genome Research Institute (NHGRI)
Cautious optimism going forward
While we are highly cognizant of moves in the market,
our three- to five-year timeline for investing allows us to
take a longer term approach. We believe many stocks in
the information technology space remain relatively wellpositioned
going forward. We are constantly evaluating the
technology supply chain and demand signals coming from
key technology end-markets. We believe the rebound within
the sector should continue for the remainder of 2019.
On the health care front, we believe the demand for quality
health care should drive growth within biotechnology,
health care information technology systems and
pharmaceuticals. We think the next few years should be
particularly constructive for biotechnology stocks. We
believe there will be improvement in capital spending
trends, and we are looking for a continuation of an active
As always, we continue to monitor the macroeconomic
environment, but our focus remains primarily on securityspecific
fundamental research. We believe this attention
to bottom-up research, coupled with the innovation and
transformation under way across the globe, should continue
to provide investment opportunities for the Fund.
Past performance is no guarantee of future results. The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any
investment product. The opinions are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of
information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s
specific objectives, financial needs, risk tolerance and time horizon.
Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s
performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries
or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may
underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition
to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short
product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund
classes may be offered at all broker/dealers. Holdings information is not intended to represent any past or future investment recommendations. Holdings and allocations can and do change frequently.