Management’s Discussion of Fund Performance1
Economic and Market Conditions
The 12-month period starting September 1, 2020, was notable for a widespread global equity rally that began in November 2020, paused in January 2021, and then continued almost unabated through the end of the period. Broad-market stock indexes posted strong double-digit returns as investors cheered the re-opening of businesses that had been closed or hobbled by COVID-19 the previous spring, along with the rollout of several effective vaccines.
The news was not all good, however, as the path of the virus continued to have a firm grip on the global economy, as a third and fourth wave of COVID infections coursed through nations across the globe. COVID concerns were largely responsible for equity market downturns in September and October 2020. For the rest of the period, COVID worries sparked several steep, but brief, market retreats.
Worker shortages due to illness, as well as reluctance to return to work for fear of contracting the virus, led to global supply chain issues throughout the period. From computer chips to shipping containers, scarcities of key items led to temporary factory shutdowns, empty store shelves, and car dealers short of vehicles to sell. In the U.S. in particular, shortages — combined with high demand from consumers — led to higher year-over-year inflation than the economy had seen in years. While U.S. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen expressed the view that inflation in 2021 would likely be transitory, inflation became a key concern for investors during the period.
The health care sector lagged the broader global equity market during the period, as investor optimism around COVID-19 vaccine rollouts and economic re-openings favored more cyclical sectors such as financials, energy, and industrials. Meanwhile, sectors traditionally viewed as more defensive in potential down markets — including consumer staples, utilities, and health care — trailed the overall equity market. Within health care, the pharmaceuticals industry lagged the broader market and dampened sector returns. The life sciences tools and services industry fared the best within health care, as many companies in that industry saw increased business from COVID-19 testing and vaccine development.
For the 12-month period as a whole, the MSCI World Index, a broad measure of global equities, returned 29.76%; while the S&P 500® Index, a broad measure of U.S. stocks, returned 31.17%; and the technology-laden Nasdaq Composite Index rose 30.49%. The MSCI EAFE Index of developed-market international equities returned 26.12%, while the MSCI Emerging Markets Index returned 21.12%.
Fund Performance
For the 12-month period ended August 31, 2021, Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio) (the Fund) returned 22.58% for Class A shares at net asset value (NAV), underperforming its primary benchmark, the MSCI World Health Care Index (the Index), which returned 23.46%.
On an industry basis, the main detractors from Fund performance versus the Index were stock selections in biotechnology, health care equipment and health care supplies. Within biotechnology, underweighting drug developer Moderna, Inc. (MRNA, Financial) (Moderna), relative to the Index, detracted from performance versus the Index. Moderna’s stock price advanced during the period after it developed one of two authorized COVID-19 vaccines based on groundbreaking mRNA — messenger ribonucleic acid — technology. The Fund’s overweight position in biotechnology firm Vertex Pharmaceuticals, Inc. (VRTX, Financial) (Vertex), which focuses on developing small molecule drugs for patients with serious diseases like cystic fibrosis and cancer, hurt relative returns as well. The stock declined in price after Vertex reported a disappointing clinical trial for a liver treatment drug. By period-end, Vertex was sold from the Fund. In health care supplies, the Fund’s overweight position in Haemonetics Corp. (HAE, Financial) (Haemonetics), which develops products related to blood diseases, also hurt relative returns versus the Index. Haemonetics’ share price dropped sharply in April 2021 after a key customer failed to renew its plasma collection contract. By period-end, Haemonetics was sold from the Fund.
Elsewhere in the sector, not owning Index component and aesthetic dental products maker Align Technology, Inc. (ALGN, Financial) (Align) detracted from performance versus the Index as well. As dentists and orthodontists reopened their offices after pandemic-induced shutdowns, Align’s stock price rose on strong sales of its products.
In contrast, stock selections in the pharmaceuticals, health care technology, and health care services industries contributed to Fund performance versus the Index. In pharmaceuticals, the Fund’s overweight position in Eli Lilly & Co. (LLY, Financial), a global drug maker specializing in diabetes, oncology, and immunology therapies, rose in price on positive test data for its next-generation diabetes drug. Also in pharmaceuticals, the Fund benefited from not owning Bayer AG (XTER:BAYN, Financial) (Bayer), a Germany-headquartered producer of pharmaceutical, consumer, animal, and crop health products. Bayer’s stock price declined during the period after the company lowered its earnings outlook for its crop sciences business as a result of the COVID-19 pandemic.
In the health care technology sector, the Fund’s overweight position in software firm Phreesia, Inc. (PHR, Financial) (Phreesia) rose in value during the period. COVID vaccinations and the resumption of in-person medical appointments increased demand for the company’s health care appointment, registration, and clinical information programs for medical offices. By period-end, Phreesia was sold from the Fund. An overweight position in R1 RCM, Inc. (RCM, Financial) (R1), which helps health care providers manage revenue cycles, contributed to performance versus the Index in the health care services industry. R1’s stock price rose as the company won several large new contracts during the period.
- The views expressed in this report are those of the portfolio manager(s) and are current only through the date stated at the top of this page. These views are subject to change at any time based upon market or other conditions, and Eaton Vance and the Fund(s) disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. This commentary may contain statements that are not historical facts, referred to as “forward-looking statements.” The Fund’s actual future results may differ significantly from those stated in any forward-looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of Fund shares, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in the Fund’s filings with the Securities and Exchange Commission.
- MSCI World Health Care Index is an unmanaged index of health care sector equities within the MSCI World Index. MSCI indexes are net of foreign withholding taxes. Source: MSCI. MSCI data may not be reproduced or used for any other purpose. MSCI provides no warranties, has not prepared or approved this report, and has no liability hereunder. S&P 500® Index is an unmanaged index of large-cap stocks commonly used as a measure of U.S. stock market performance. S&P Dow Jones Indices are a product of S&P Dow Jones Indices LLC (“S&P DJI”) and have been licensed for use. S&P® and S&P 500® are registered trademarks of S&P DJI; Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); S&P DJI, Dow Jones and their respective affiliates do not sponsor, endorse, sell or promote the Fund, will not have any liability with respect thereto and do not have any liability for any errors, omissions, or interruptions of the S&P Dow Jones Indices. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index.
- Total Returns at NAV do not include applicable sales charges. If sales charges were deducted, the returns would be lower. Total Returns shown with maximum sales charge reflect the stated maximum sales charge. Unless otherwise stated, performance does not reflect the deduction of taxes on Fund distributions or redemptions of Fund shares.
- Source: Fund prospectus. Net expense ratios reflect a contractual expense reimbursement that continues through 12/31/21. Without the reimbursement, performance would have been lower. The expense ratios for the current reporting period can be found in the Financial Highlights section of this report.
- Excludes cash and cash equivalents.
Fund profile subject to change due to active management.
