Hilary Natoff manages this £850m fund and she describes her strategy for picking stocks as a “go-anywhere” approach within the healthcare industry.
Consequently, the fund is made up of her “best ideas” in order to achieve her objective, which is long-term capital growth through investment in companies “focused on the design, manufacture or sale of products and services used for healthcare, medicine or biotechnology throughout the world”.
Ms Natoff notes: “I focus on the long-term investment potential of firms with unique products and pipelines, superior pricing power, proven products in the late stage of development catering to an unmet medical need and exposure to structural demographic themes.”
The manager acknowledges that while her process remains little changed, the investment landscape in the healthcare industry has evolved since she started running the fund in January 2006. “In particular, emerging markets have become more prominent,” she points out.
“Longer global life expectancies and a growing middle class in emerging markets are continuing to drive healthcare demand. For instance, changing lifestyles in India, China and Brazil have created an obesity and diabetes epidemic. The International Diabetes Federation estimates a doubling in healthcare expenditure due to diabetes across the whole Middle East and North Africa region from $10.9bn [£7bn] to $21.8bn by 2030.”
Ms Natoff explains that she continues to favour pharmaceutical and biotechnology companies. She identifies some of her key holdings as pharmaceuticals firms Novo Nordisk, Bayer and Novartis, and biotechnology stocks BioMarin and Biogen Idec. “I am also biased towards the healthcare equipment and supplies sub-sector as a result of favourable demographics, which is a big positive for these companies,” she says. Key holdings in the sector include diversified medical products business Abbott Laboratories and contact lens player Cooper Companies.
While the manager explains the vehicle is not significantly influenced by short-term macroeconomic factors, she admits that in the past year austerity measures in Europe have curtailed healthcare spend. But she adds: “The US Supreme Court’s recent decision to back a key component of president Barack Obama’s healthcare reform was supportive for the fund’s holdings in US hospital operators.”
The key investor information document shows the fund sits at level five on a risk-reward scale, putting it towards the riskier end of the spectrum, while the clean W-accumulation retail share class has ongoing charges of 1.18 per cent.
Ms Natoff’s fund has outperformed its Investment Association Global sector peer group in the 12 months to June 29, returning 31.25 per cent against the sector average of 9.69 per cent, data from FE Analytics shows. It also beat its benchmark in the period, with the MSCI AC World Health Care index gaining 29.22 per cent. But the fund lags its benchmark across 10 years, with the manager delivering a respectable 187.82 per cent versus the index’s rise of 209.01 per cent.
The manager points to large-cap pharmaceutical stocks as the reason for the portfolio’s strong performance in the past year. She notes: “BioMarin was a big contributor as the company reported strong results and announced positive results from a drug trial. [Robust] sales were led by its new enzyme-replacement therapy drug Vimizim. Shares also advanced amid speculation that specialty biopharmaceutical firm Shire may acquire BioMarin.”
Ms Natoff admits that a slight underweight exposure to the managed healthcare sector “hurt performance”, while not owning some of the “riskier” biotechnology names also detracted from performance. “At a stock level, holdings in Chugai Pharmaceutical fell after Roche [Chugai’s largest shareholder] announced disappointing results from a breast cancer drug trial,” she says.
“Nevertheless, my positive view on the stock is based on its deep product pipeline. Johnson & Johnson recently reported lower-than-expected quarterly sales as a stronger US dollar offset higher sales of its new drugs and older treatments. But the long-term fundamentals for the stock remain intact.”
EXPERT VIEW
Darius McDermott, managing director, Chelsea Financial Services
This fund invests in mainly large-cap firms across the whole of the healthcare sector, not just biotechnology, and the names in the top-10 holdings will be familiar to most people as it includes large pharmaceuticals. Returns are nothing like that of the Biotech Growth Trust, but are very good in their own right and it is one of the best open-ended funds in the wider healthcare sector. While about 60 per cent of the portfolio is invested in US stocks, it also has a 30 per cent weighting to Europe and a small amount spread across the rest of the world. The manager has done a good job on the fund since taking it on in 2006.
