Trophy Funds

SEPTEMBER 2017

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Hot sectors As of 8/23/2017 Hot sectors As of 8/23/2017 Technology Technology

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“ Health care is odd and a lot of people think of it as defensive, when it’s not really defensive; it’s just not correlated. ” people think of it as defensive, when it’s not really defensive; it’s just not correlated,” said Teresa McRoberts, senior vice president and manager of Alger Health Sciences (AHSAX). “And what I mean by that is some- times it does well when the economy is doing well, and sometimes it does Infrastructure notches big gains Infrastructure has been the third- best sector, up 14% year to date. Fi- delity Investments’ sector strategist Denise Chisholm says that the sector is “aligned for the potential snapback in relative earnings growth coupled with some multiple appreciation.” Virtus Duff & Phelps Global In- frastructure (PGUAX) invests in four main areas: utilities, communication, transportation and energy pipelines. The fund’s co-manager, Connie Lu- ecke, looks for consistency of returns that come from long-term contracts and heavy regulation. “The revenue and cash flow visibility is quite high,” Luecke said. “ Health care is odd and a lot of people think of it as defensive, when it’s not really defensive; it’s just not correlated. ” new mobile consumer applications such as AR (augmented reality) are all in very early days, while other trends like cloud computing, SAAS (software as a service) and e-com- merce continue to be in the sw et spot of growth.” Chai also added that “While valua- tion has om up, w are not ap- proaching prior peak levels yet.” Health holds strong Health care has been another bi winne t is year, despite jitters c us d by the Trump administration concerning ObamaCare and drug pricing. The sector is up 15% y ar to date and has returned an average of 14.6% and 16.5% for the past three and five years. “Health care is odd a d a lot of people think of it as defensive, when it’s not really defensive; it’s just not correlated,” said Teresa McRoberts, senior vice president and manager of Alger Health Sciences (AHSAX). “And what I mean by that is some- times it does well when the economy is doing well, and sometimes it does e s dd as defensive, when it’s not ( o w a r i e merce c ntinue to be in the t spot g . hai also add h h le - ha , w p p t.” Health h lds strong er h s , sp tt e t r p g a e ru pricing. .6% d . s. “Health c e, when it’s not really defensive; it’s just not , , d n al e AHSAX). - , li ti n of Tribune Online ti t new mobile consumer applications such as AR (augmented reality) are all in very early days, while other trends like cloud computing, SAAS (software as a service) and e-com- merce continue to be in the sweet spot of growth.” Chai also added that “While valua- tion has come up, we are not ap- proaching prior peak levels yet.” Health holds strong Health care has been another big winner this year, despite jitters caused by the Trump administration concerning ObamaCare and drug pricing. The sector is up 15% year to date and has returned an average of 14.6% and 16.5% for the past three and five years. “Health care is odd and a lot of Align Technology (ALGN), Illu- mina (ILMN) and Abiomed (ABMD) were also strong contributors, return- ing 78%, 52% and 33%, respectively, this year. Align makes clear braces for teeth, Illumina is a leader in genomic sequencing, and Abiomed develops devices to help the heart pump. , d i e oud c m , S

is up 32.8% this year and sports average five- and 10-year returns of 18.5% and 11.76%, respectively. Its top holdings include Apple (AAPL), Facebook, Tesla (TSLA) and Alphabet, totaling a whopping 31% of the fund’s assets. Electric vehicle maker Tesla skyrocketed over 70% this year. Developer of computer-aided design software Autodesk (ADSK), Chinese on- line marketplace operator Alibaba (BABA) and video game publisher Electronic Arts (EA) also contrib- uted with returns of 46%, 79% and 48%, respectively. “Automobile manufacturers was the group with the largest positive impact on the relative result,” said the fund’s manager, Charlie Chai. “Positioning in home entertainment software and a non-index allocation to internet and direct marketing retail also bolstered relative performance.” The fund invests in companies that will benefit significantly from technological advances. More spe- cifically, Chai picks “secular growth and compounding companies that are not priced for their long growth potential, cyclical companies that are priced below their cash flow genera- tion through a cycle and when cycles are at or close to a trough with im- provement in sight, as well as special turnaround stories.” He believes there are many oppor- tunities left in the tech sector. “AI (artificial intelligence), EV (electric vehicles), new user interfaces and vice president and manager of Alger Health Sciences (AHSAX). “And what I mean by that is sometimes it does well when the economy is doing well, and sometimes it does poorly when the economy is doing poorly.” She points out that the sector has its own set of fundamentals: “It’s not about consumer confidence or wheth- er the GDP is strong. It’s really about what’s going on in Washington.” Part of this year’s strong perfor- mance is a recovery from the many headlines that hit the sector last year, notes McRoberts. Another reason is that people have become less concerned about Wash- ington as a threat. “It seems that Washington is not functioning as well as people thought in terms of passing any sort of legislation,” she said. The $144 million AHSAX is up 26.76% i 2017, and with its 10.42% average 10-y ar return it is the best amo g its peers. It doesn’t c me cheap, though, wit an expense fee of 1.41% and a l ad f 5.25%. The fund invests about 45% in bio- tech, 16% in health care equipment nd supplies, 9% in pharm and 9% in h alth care providers and services. The biotech sector performs well when there are a lot of new products, which has been the case this year, says McRoberts. Vertex Pharmaceuticals (VRTX) showed some positive data about a new product for cystic fibrosis and its stock has more than doubled through early August. Continued from Pg. 1 is up 32.8% this year and sports average five- and 10-year returns of 18.5% and 11.76%, respectively. Its top holdings include Apple (AAPL), Facebook, Tesla (TSLA) and Alphabet, totaling a whopping 31% of the fund’s assets. Electric vehicle maker Tesla skyrocketed over 70% thi year. Developer of computer-aided design software Autodesk (ADSK), Chinese on- li e marketplace operator Alibab (BABA) and video game publish r Electronic Arts (EA) also contrib- uted with returns of 46%, 79% and 48%, respectively. “Automobile manufacturers was the group with the largest positive impact on the relative result,” said the fund’s manager, Charlie Chai. “Positioning in home entertainment software and a non-index allocation to internet and direct marketing retail also bolstered relative performance.” The fund invests in companies that will benefit significantly from technological advances. More spe- cifically, Chai picks “secular growth and compounding companies that are not priced for their long growth potential, cyclical companies that are priced below their cash flow genera- tion through a cycle and wh n cycles are at or close to a trough with im- provement in sight, as well as special turnaroun stories.” He believes there are many oppor- tunities left in the tech sector. “AI (artificial intelligence), EV (electric vehicles), new us r interfaces and . . , . o i g i e (AA , book, T s A) and Alphabet, totaling a whopping 31% f f ’ assets. E ic vehicle make e over 70% thi . l er of computer-aide e i n ftw s , i es n e i Electronic Arts (EA) also contrib- e , , . m group with the largest positive impa , ’ na , r e . P si n g m m n- n dire . d i e t significant o techn g cal va s. cifically, C i ng f h ng p i , y a a e a r ed t - n are at or close to u with im , a ou tories. e believes th many p tu t left in the tech secto . I , vehicles), n a e d TM l tt i t l t t li f t l i Sun, rla d enti l nd t aj

YTD Returns

23.71% 23.71%

Health

16.62 15.24 5

YTD Returns

Infrastructure Technology

23.71%

Utilities 14.53 Consumer Cyclical 7.41 Source: Morningstar Health 16.62 Infrastructure 15.24 : in sta

poorly when the economy is doing poorly.” She points out that the sector has its own set of fundamentals: “It’s not about consumer confidence or whether the GDP is strong. It’s re- ally about what’s going on in Wash- ington.” Part of this year’s strong perfor- mance is a recovery from the many headlines that hit the sector last year, notes McRoberts. Another reason is that people have become less concerned about Washington as a threat. “It seems that Washington is not functioning as well as people thought in terms of passing any sort of legislation,” she said. The $144 million AHSAX is up 26.76% in 2017, and with its 10.42% average 10-year return it is the best among its peers. It doesn’t come cheap, though, with an expense fee of 1.41% and a load of 5.25%. The fund invests about 45% in bio- tech, 16% in health care equipment and supplies, 9% in pharma and 9% As a result, the fund focuses mostly on owners and operators, while stay- ing away from companies with variable revenue. A contributor to the fund’s performance is U.S. rail operator CSX (CSX), which benefited from a restruc- turing story and is up 41%. The fund also holds 43% in interna- tional equities. Among those, Europe- an airports such as Aeroports de Paris (ADP) and Flughafen Zuerich (FHZN) so red 42% and 31%, respectively, on the back of a global economic recovery. The $120 million PGUAX is up 15.23% year to date and an average 8.61% over the past five years. It carries a fee of 1.3 % and a load of 5.75%. Other strong sec o s this year are utili- ties, consumer cyclicals, industrials and financials. Among thos s ctors, two funds are IBD’s 2017 Best Mutual Fund Award winners: Fidelity Select Air Trans- portation (FSAIX) and RMB Mendon Financial Services (RMBKX). poorly when the economy is doing poorly.” She points out that he sector has its o n set of fund m ntals: “It’s not about consumer confidence or whether the GDP is strong. It’s re- ally about what’s going on in Wash- ington.” Part of this year’s strong perfor- mance is a recovery from the many headlines that hit the sector last year, notes McRoberts. Another reason is that people have become less concerned about Washington as a threat. “It seems that Washington is not functioning as well as people thought in terms of passing any sort of legislation,” she said. The $144 million AHSAX is up 26.76% in 2017, and with its 10.42% average 10-year return it is the best among its peers. It doesn’t come cheap, though, with an expense fee of 1.41% and a load of 5.25%. The fund invests about 45% in bio- tech, 16% in health care equipment and supplies, 9% in pharma nd 9% 14.53 Consumer Cyclical 7.41 ource: Morningstar . h u own set of fundamentals: “It’s . ’ ally about what’s going on in Wash- ing . y ’s s o p ecovery from the man dl n at h t t s , t . Another reason t v a n a h . t e a p t o assing any so , . The l H is 6. i 7, d t . averag 10-year re u n it is he b peers. It doesn’t , , s . . . u es abou 4 n tech, e s p , on o ll iti T i f ti t ’ i il li t li l ; e o i lie with r t t it u Utilities

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