Given the uncertainty of the current geopolitical environment and the market, it is more important than ever to seek peace of mind with our investments. Relying on megatrends allows us to reduce portfolio volatility since, by investing in future drivers of the global economy, we are investing in companies with strong tailwinds and high structural growth. This offers us a margin of safety by removing us from the cyclicality of the market, while allowing us exposure to above-average growth. These are companies with tremendous potential, due to the innovation required to be in a leading industry, with elevated interest from international investors, which makes them marginal buyers during widespread market corrections.
Still, it is not enough to spot these megatrends and wait. The process requires selectivity and conviction in the top companies to avoid selling too soon, once the market begins to recognise their value or when noise is generated about issues unrelated to their fundamentals. This is where the analyst makes a difference: identifying the growth drivers of the various industries and selecting companies with the best fundamentals that are well-poised to benefit from these trends.
Years ago, EDM detected a great opportunity in the Health and Aging Population sector. Subsequently, the analysis team identified the best companies from different regions and incorporated them into the various funds.
With regard to Europe, we have a company regularly among the top 5 in EDM Strategy: Novo Nordisk. The pharmaceutical company gained +27% in Q1, after a remarkable 2023 in which the share appreciated +50%, positioning the company as the largest in Europe by market cap. The publication of Q4 results exceeded consensus expectations in terms of sales and profits, and the company announced 2024 guidances that also surpassed market estimates. Growth continues to be driven by strong demand for its anti-diabetes and obesity medications, which act as appetite suppressants. Ozempic and Wegovy led the group to record profits in 2023, becoming a goldmine for Novo Nordisk, a business still with considerable growth potential. During the company’s investor day in early March, it delivered another positive surprise to the market by announcing a new oral anti-obesity drug—currently in Phase I—that is much more effective than the current drugs and those that have potential competitors in development.
Another example of our ability to detect investment opportunities is Edwards Lifesciences in the EDM Global Equity Impact fund. According to the WHO, roughly 25% of deaths worldwide are attributable to cardiovascular disease. The latest data available estimates that nearly 15 million people die from heart disease each year. Despite the magnitude and severity of this data, science has managed to radically reduce these numbers. Edwards Lifesciences is a clear example of this. The US company is entirely focused on developing techniques that heal heart diseases related to the aortic, mitral, and tricuspid valves. Over the last 20 years, Edwards has spearheaded innovation in the industry by launching transcatheter valve replacement technology. Constant R&D investment, commitment to talent, and closeness to patients are key to the company’s success. It currently relies on a market share in excess of 60% in the aortic valve segment, gross margins of 80%, operating margins of 32%, a balance sheet with net cash, and a product portfolio that is unique in the world to continue leading the cardiac industry. In such a delicate niche, its leadership position, coupled with constant R&D investment, allows Edwards to maintain very high-quality standards which, in turn, helps keep margins above those of its competitors.
Along the same lines, it is worth highlighting Rovi in the EDM Spanish Equity fund. Rovi is a company with an outstanding management team and a proven track record since its inception and IPO. It has zero debt and a very strong product portfolio. In recent years, the company attained nearly EUR 800 in additional potential sales, thanks to i) the launch of the Enoxaparina biosimilar in 2017 (€150m - €200m in sales), ii) the signing of an agreement to manufacture COVID vaccines and R&D with Moderna in 2020 (€300m in sales), and iii) approval to market Okedi for schizophrenia in 2022 (€150m-€300m in sales). Its rapid ability to adapt to the needs of clients makes it a leading player for the outsourcing of drug manufacturing in Spain. The capacity increase implement for COVID vaccines is an extremely valuable asset at present, given the lack of production capacity, especially in Europe, exacerbated by the rapid growth of GLP-1. This is reflected in the fact that the company hired an investment bank to explore the possible sale of its manufacturing division to third parties. We believe it could reach a valuation of €4bn-€5bn, in line with the company’s capitalisation, which implies that the remainder of the business is not currently being appraised.
In short, investment strategies based on megatrends, supported by competent management teams in sectors with strong growth potential are a promising approach in today’s market panorama. By detecting and capitalising on these global trends, we not only mitigate volatility, we also create opportunities to generate significant long-term returns.
Our continued dedication enables us to offer our investors a diversified and resilient portfolio. We remain focused on leading industries, like technology, healthcare, and industrial innovation, while pursuing investment opportunities consistent with our long-term strategic vision. Likewise, our commitment to excellence in the analysis and selection of assets allows us to continue delivering healthy, sustainable results to our clients, while proactively adapting to a constantly evolving market.
EDM Investment Team
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