By Jamie Murray, CFA
The Evolving Opportunity in Biotechnology
Artificial intelligence is beginning to move beyond software and into the physical sciences, with biotechnology emerging as one of its most promising applications. Drug development has traditionally been a slow, expensive and failure-prone process, but AI can increasingly help researchers identify biological targets, design molecules and analyze enormous amounts of genomic and clinical data more efficiently.
Moderna provides a compelling example. Its individualized cancer therapy, intismeran autogene, uses algorithms to analyze the unique mutations within a patient’s tumour and select the neoantigens most likely to trigger an immune response. Those instructions are then encoded into a personalized mRNA therapy. In August, Moderna and Merck reported that the treatment, combined with Keytruda, met its primary endpoint in a Phase 3 melanoma trial, an important milestone for both personalized cancer vaccines and the use of computational methods in medicine.
Other examples are beginning to move from experimentation towards clinical validation. Insilico Medicine has advanced rentosertib, a drug involving both an AI-identified target and AI-designed molecule, into Phase 3 development for idiopathic pulmonary fibrosis. Meanwhile, Recursion recently announced that Genentech had advanced a previously unexplored neuroscience target discovered through its AI-driven maps of biology into an early drug-discovery program.
The investment opportunity may therefore extend well beyond the companies building large AI models. If these technologies can improve the probability of identifying successful drugs, shorten development timelines or enable treatments that would previously have been impractical, biotechnology could become one of the most consequential real-world applications of artificial intelligence.
We maintain exposure to this thematic opportunity through holdings in pharmaceutical companies including Pfizer, Eli Lilly, AstraZeneca and Moderna, as well as Thermo Fisher, a diversified provider of tools and services to the pharmaceutical industry.
Market Outlook
Equity markets extended their summer rally in August, with major U.S. indices moving higher despite persistent concerns about volatility. The S&P 500 gained approximately 2.6% for the month, touching record highs as investors continued to respond positively to a strong second-quarter earnings season. Technology and AI-related stocks regained momentum, with information technology among the strongest-performing sectors. While questions around elevated valuations and the scale of AI capital expenditures remained, solid earnings growth helped reinforce confidence that corporate investment is translating into stronger results.
Canadian stocks continued to outperform their U.S. counterparts. The S&P/TSX Composite gained roughly 3% in August, marking another positive month for the Canadian market. Strength across materials, energy and financials supported the index, with particularly strong performance from mining and materials stocks as metal prices advanced. The TSX remained well supported by its greater exposure to commodities and resource-oriented companies, helping it maintain its lead over U.S. benchmarks.
Commodities remained a key focus for investors in August. Oil prices were volatile throughout the month as markets continued to be affected by geopolitical tensions and uncertainty surrounding the conflict between the U.S. and Iran. West Texas Intermediate (WTI) finished August around US$86 per barrel after trading through a wide range during the month. Gold had another standout month, rising sharply as investors sought protection amid geopolitical uncertainty and shifting expectations around monetary policy.
MWG Global Equity Growth Fund
The MWG Global Equity Growth Fund Series O returned 2.4% in August, outperforming its benchmark return of 1.8% for the month. Year-to-date, the Fund has gained 9.3%, compared with 13.8% for its benchmark. Monthly performance was driven by strong gains in Moderna (+136%), ServiceNow (+31%) and Alamos Gold (+30%). The primary detractors for the period were Aon (-12%), Prudential (-11%) and STMicroelectronics (-11%).
Portfolio Manager’s Summary
We initiated new positions in STMicroelectronics and Moderna in August.
Moderna’s investment case is increasingly shifting from a post-COVID vaccine story towards a broader mRNA oncology platform, with its personalized cancer vaccine now providing a major proof point following successful Phase 3 melanoma results in combination with Keytruda. The key upside is not just melanoma, but the potential to apply the same platform across much larger cancer indications such as lung cancer, while its partnership with Merck helps share development risk.
The opportunity remains high-risk given regulatory, manufacturing, cash-burn and cross-indication execution uncertainty, but the successful late-stage data materially improve the probability that Moderna’s mRNA platform could become a meaningful long-term growth engine.
STMicroelectronics offers a relatively grounded way to participate in the growth of the space economy without relying on speculative assumptions around orbital data centres or launch economics. The company already has a dominant position in low-Earth-orbit semiconductors, significant exposure to Starlink terminal volumes and a broader business spanning automotive, data centres and industrial applications.
The investment case is therefore less about betting on a single futuristic outcome and more about owning an established semiconductor supplier that can benefit from rising satellite deployments, connectivity demand and broader electronics growth. Key risks include customer concentration, execution and the cyclical nature of its core end markets.
To fund the purchases, we exited our positions in Tourmaline and Vital Farms.
MWG Income Growth Fund
The MWG Income Growth Fund Series O returned -2.0% in August, compared with its benchmark return of -0.9% for the month. Year-to-date, the Fund continues to lead, returning 20.8% compared with 10.8% for the benchmark. August performance was supported by gains in PHX Energy (+20%), Pfizer (+12%) and Whitecap Resources (+9%). The primary detractors for the month were GO Residential REIT (-17%), Premium Brands (-14%) and Canada Packers (-13%).
Portfolio Manager’s Summary
We made no changes to the Fund in August. While the Fund has broad exposure to energy and industrial markets that provide some inflation protection, our REIT portfolio has been impacted by rising interest rates in both Canada and the U.S.
GO Residential was the Fund’s weakest performer during the month, with shares falling following its proposed acquisition of H&R REIT. We believe the transaction represents an attractive acquisition for existing GO unitholders, as the combined company would become a larger and more diversified REIT. We also believe the residential assets are high quality and attractively priced. Together, these factors should support a higher valuation once the deal closes and provide greater capital appreciation potential than a standalone, New York City-focused REIT.
It remains to be seen whether H&R shareholders will approve the deal. H&R had been on the sale block for many months and failed to find a buyer for its large, diversified property mix. Selling its Canadian operations to Blackstone for cash without a corresponding transaction for the remaining units would therefore risk leaving H&R unitholders with a less diversified and less liquid REIT containing an assortment of assets that may prove equally difficult to dispose of.
