Launched more than 30 years ago, the Invesco Global Health Care fund aims to deliver long-term capital growth by accessing the industry’s primary four sub-sectors, namely biotechnology, services, devices and pharmaceuticals.
Manager Derek Taner, who has been in the driving seat since 2006, typically maintains exposure to all four, noting that since 1996, with the exception of 2006 and 2010, at least one of the four sub-sectors has outperformed the wider market.
Benchmarked against the MSCI World Health Care index, the fund has some 70 per cent of its assets in US firms, with the rest spread across the globe. “We are trying to beat the index with less volatility, whereas most of our peers tend to compete against each other,” he adds.
The fund is at level five on a risk-reward profile and has ongoing charges of 2.48 per cent.
When it comes to picking stocks, Mr Taner employs a variety of different screen tests, but a common factor he is looking for is value. He says: “By value, I mean we seek out firms which have seen, unfairly, a fall in their shares where nothing has fundamentally changed in the company but they have been misunderstood by the market.”
Getting in early on such opportunities gives the manager the chance to make a profit when the market eventually comes back around. “You have to be thinking 12 months from now, and asking ‘what will people be saying about this firm?’.”
Given the nature of healthcare, macroeconomic factors tend to be in the background but Mr Taner admits that while the vast majority of his work is bottom-up, there is still a top-down element, adding: “The healthcare sector, in general, is a defensive growth industry. It tends to be fairly consistent regardless of the market backdrop.”
Right now the Invesco manager says he has three themes playing out across the fund, including biotech, M&A and US healthcare reform – ‘Obamacare’. In terms of the first, Mr Taner says: “Around 2000 there was a lot of excitement around biotech but it turned into a bubble; 14 years later, it is finally coming to fruition. We are close to 10 per cent overweight on biotech, with the emphasis on large caps such as Gilead and Biogen.”
Mr Taner cites the leaps and bounds that have come on treating diseases, noting that hepatitis C is finally being cured, while cancer treatments have made hugely significant progress. He adds: “The research coming out right now is compelling. There are new ways of treating cancer, such as immuno-oncology, which helps people’s immune systems fight cancer.”
Significantly, the US Patient Protection and Affordable Care Act (PPACA) will see a huge amount of cash injected into the industry over the coming decade, which will benefit the sector as a whole, especially hospitals, which represent another overweight for the manager.
Like many of his competitors, the softer backdrop has helped boost performance, and in the five years to September 15, the fund has delivered a return of 100 per cent. But in spite of the three-figure achievement, the fund is still some distance behind the MSCI World Health Care index, which is up 132 per cent over the period, according to data from FE Analytics. For its part the biotechnology sector has been a big driver of returns for the fund of late, with the US Nasdaq Biotech index up almost 30 per cent over the past 12 months.