Listed investment company Australian Leaders Fund (ASX: ALF) had a strong year in 2013 delivering an underlying portfolio return of 30% net of all fees. It was an impressive result particularly considering that the company's cash weighting over the period was a high 45%. Equally impressive is the firm's long-term track record which dates back to 2004 – since inception the ALF portfolio has returned 16.1% per annum net of fees.
As at the 31 December the top three holdings of the fund were Australian and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and BHP Billiton Limited (ASX: BHP), which represented portfolio position sizes of 9.1%, 8.9% and 5.1% respectively.
ALF has just released its quarterly report – The Leading Edge. In the publication, Justin Braitling, the portfolio manager at ALF has outlined a key theme he sees for the coming year.
Healthcare
Braitling makes his case for investing in healthcare describing it as "one of the few growth sectors in the Australian share market". This growth (according to Braitling) is being driven by an ageing population, rising obesity levels and a growing middle class.
With this theme in mind, Braitling makes his case for some of the healthcare stocks that the ALF portfolio holds. ResMed Inc (ASX: RMD) develops and manufactures products for the treatment of obstructive sleep apnea and related respiratory diseases. Impressively ResMed can boast of having just under half of global sales for these treatments. Braitling believes that ResMed is trading at a significant discount to fair value.
The second stock identified in the report is CSL Limited (ASX: CSL). CSL is a world leader in immunology; by fractionating plasma into its components CSL is able to provide treatments for many hard to treat diseases.
Braitling also points out that emerging healthcare stocks can be incredibly rewarding. One singled out for its potential is the recently reinvigorated Mayne Pharma Group Ltd (ASX: MYX). Mayne is a pharmaceutical manufacturer with a portfolio of both branded and generic drugs. The company recently expanded its footprint in the USA via the Metrics acquisition which has created new growth options for the firm.
Foolish takeaway
Braitling sounded a warning in his update to shareholders that, "caution should be exercised as US shares have rarely been rated more highly." In the US, like Australia, much of the rally in the market is the result of price-to-earnings (PE) expansion, not earnings growth. Significant earnings growth is now priced into stocks to justify forward valuations. One of the few sectors that might actually produce earnings growth could be healthcare – making it a potentially good theme for investors in the coming year.
