• The increasing penetration of bio-generics, requiring increased technical manufacturing capability; and
• Aging demographics where populations are more exposed to diseases where biologics are gaining a strong foothold (cancers, Alzheimer’s, immunodeficiency as examples).
There is strong intellectual property and few competitors capable of providing the government approved technical equipment for the manufacture of biologics the barriers to entry are high.
Sartorius is expected by analysts to grow revenue by more than 8% this year, driven by demand from the trends indicated above, and have little to no exposure to the general economic cycle. We don’t see any avenues where their products are easily substitutable or where competitive pricing dynamics could be upset in the advent of trade actions. Any trade disputes that do come along shouldn’t have a material impact on the longer-term outlook for their business. That said, market volatility driven by a tariff scare could cause the price of Sartorius stock to drop, which, to our way of thinking, might allow us the potential opportunity to add to shares at a price that we otherwise wouldn’t have been able to achieve, all else being equal.
Bottom Line
Recent trade tensions and the worry surrounding the potential for an all-out trade war have certainly contributed to the increase in market volatility around the globe in recent months. So far, we see little in the way of direct impact to the business models for the majority of our portfolio holdings. The increase in volatility may provide us access to lower prices, which theoretically should open the Fund to opportunities to generate more attractive risk adjusted returns.
Yes, we worry about global trade disputes, but we think the impacts to the portfolio are likely to be short-lived and relatively limited. Should trade disputes impact the markets to any significant degree, the volatility just may provide us the opportunity to identify additional attractive investment opportunities.
Bill Kornitzer, CFA is a portfolio manager for the Buffalo International Fund (BUFIX) at Buffalo Funds in Mission, Kansas.