The Vanguard Health Care Fund (Trades, Portfolio) released its first-quarter 2023 portfolio earlier this week.
Overseen by Jean Hynes, the fund invests in a variety of health care-related stocks from around the world in order to achieve long-term capital appreciation. It picks stocks of companies that have high-quality balance sheets, strong management teams and the potential for new products that will generate consistently above-average revenue and earnings growth.
Keeping these criteria in mind, NPORT-P filings show the fund entered four new positions during the three months ended March 31, sold out of seven stocks and added to or trimmed a number of other existing investments. The most notable trades included increased bets on Merck & Co. Inc. (MRK, Financial) and Chugai Pharmaceutical Co. Ltd. (TSE:4519, Financial), a reduction of the GSK PLC (LSE:GSK, Financial) stake and the divestment of Incyte Corp. (INCY, Financial) and Astellas Pharma Inc. (TSE:4503, Financial)
Investors should be aware that, just like 13F filings, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, they collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these partial filings can provide valuable information.
Merck
The fund increased its stake in Merck (MRK, Financial) by 38.24%, buying 5.24 million shares. The transaction had an impact of 1.22% on the equity portfolio. The stock traded for an average price of $107.97 per share during the quarter.
Vanguard now holds a total of 18.95 million shares, which occupy 4.41% of the equity portfolio and is its sixth-largest holding. GuruFocus estimates it has gained 37.66% on the investment so far.
The Rahway, New Jersey-based pharmaceutical company has a $302.33 billion market cap; its shares were trading around $117.58 on Tuesday with a price-earnings ratio of 22.96, a price-book ratio of 6.49 and a price-sales ratio of 5.24.
The GF Value Line suggests the stock is modestly overvalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 84 out of 100, the GF Score indicates the company has good outperformance potential on the back of high ratings for profitability, growth and financial strength, a more moderate momentum rank and a low GF Value.
Of the gurus invested in Merck, Vanguard has the largest position with 0.75% of its outstanding shares. Ken Fisher (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Jeremy Grantham (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio) and several other gurus also have notable positions in the stock.
Chugai Pharmaceutical
Vanguard’s position in Chugai Pharmaceutical (TSE:4519, Financial) was boosted 173.37%, adding 19.14 million shares. The transaction impacted the equity portfolio by 1.03%. Shares traded for an average price of 3,379.89 yen ($24.75) each during the quarter.
The fund now holds 30.17 million shares in total, which make up 1.63% of the equity portfolio. GuruFocus data shows it has gained an estimated 115.40% on the long-held investment.
The Japanese pharmaceutical company has a market cap of 5.82 trillion yen; its shares closed at 3,542 yen on Monday with a price-earnings ratio of 27.28, a price-book ratio of 4.05 and a price-sales ratio of 7.54.
According to the GF Value Line, the stock is significantly undervalued currently.
The GF Score of 88 implies the company has good outperformance potential, driven by high ratings for profitability, growth and financial strength. The momentum rank, however, is more moderate while the GF Value is low.
With a 1.84% stake, Vanguard is the largest guru shareholder of Chugai Pharmaceutical. The iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio) also owns the stock.
GSK
The Health Care Fund curbed its GSK (LSE:GSK, Financial) holding by 58.95%, selling 13.35 million shares. The transaction had an impact of -0.49%. During the quarter, the stock traded for an average per-share price of 14.33 pounds ($17.85).
The fund now holds, in total, 9.29 million shares, which represent 0.36% of the equity portfolio. GuruFocus found Vanguard has lost about 0.73% on the investment to date.
Formerly known as GlaxoSmithKline, the British pharmaceutical company has a market cap of 58.39 billion pounds; its shares closed at 14.41 pounds on Monday with a price-earnings ratio of 4.17, a price-book ratio of 4.94 and a price-sales ratio of 2.02.
Based on the GF Value Line, the stock appears to be fairly valued currently.
The GF Score of 63 means the company has poor performance potential. While it has moderate ratings for profitability, financial strength and GF Value, the growth and momentum ranks are low.
Vanguard has the largest stake in the company with 0.23% of its outstanding shares. Other guru investors include the Causeway International Value (Trades, Portfolio) Fund, Bestinfond (Trades, Portfolio), the iShares MSCI ACWi ex. U.S. ETF and Azvalor Blue Chips FI (Trades, Portfolio).
Incyte
Impacting the equity portfolio by -1.18%, the fund sold all 6.88 million shares of Incyte (INCY, Financial). The stock traded for an average price of $78.23 per share during the quarter.
GuruFocus says the Health Care Fund gained an estimated 60.01% on the investment over its lifetime.
The pharmaceutical company headquartered in Wilmington, Delaware has a $14.58 billion market cap; its shares were trading around $69.27 on Tuesday with a price-earnings ratio of 45.57, a price-book ratio of 3.53 and a price-sales ratio of 4.32.
The GF Value Line suggests the stock is modestly undervalued currently.
Supported by solid ratings for four of the criteria and a more moderate growth rank, the GF Score is 85. As such, the company has good outperformance potential.
Holding an 8.68% stake, Dodge & Cox is Incyte’s largest guru shareholder. The stock is also being held by Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Catherine Wood (Trades, Portfolio), Grantham, Jefferies Group (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and several others.
Astellas Pharma
With an impact of -1.07% on the equity portfolio, Vanguard exited its 33.05 million-share investment in Astellas Pharma (TSE:4503, Financial). During the quarter, shares traded for an average price of 1,911.53 yen each.
GuruFocus data shows the fund gained 54.76% on the investment.
The Japanese pharmaceutical company has a market cap of 3.79 trillion yen; its shares closed at 2,093 yen on Monday with a price-earnings ratio of 27.91, a price-book ratio of 2.43 and a price-sales ratio of 2.61.
According to the GF Value Line, the stock is fairly valued currently.
The company has good outperformance potential based on the GF Score of 82. While Astellas raked in high ratings for three of the criteria and more moderate growth and momentum ranks.
The iShares MSCI ACWI ex. U.S. ETF and the T. Rowe Price Japan Fund (Trades, Portfolio) both hold 0.02% of Astellas’ outstanding shares.
Additional trades and portfolio composition
During the quarter, Vanguard also entered positions in Roivant Sciences Ltd. (ROIV, Financial), United Therapeutics Corp. (UTHR, Financial), ShockWave Medical Inc. (SWAV, Financial) and Verona Pharma PLC (VRNA, Financial) and added to the Abbott Laboratories (ABT, Financial) stake.
The Health Care Fund’s $45.69 billion equity portfolio is composed of 105 stocks. By industry, drug manufacturers make up the largest percentage of its holdings at 39.84%, followed by biotechnology at 20.11% and medical devices and instruments at 13.63%.
