Introduction
The rise in the number of cases of diabetes and obesity worldwide is also creating demand for medical services, particularly in emerging markets.
FE Analytics shows that in the past year to June 29 the MSCI World Health Care index gained 26.42 per cent, rising more than most major regional indices. Over the same period, the Nikkei 225 gained 19 per cent, while the S&P 500 was up 15.04 per cent.
This might go some way to explain why the AIC Sector Specialist: Biotechnology & Healthcare sector has been the best performing investment trust sector over one, three, five and 10 years, the Association of Investment Companies (AIC) says.
At a recent AIC roundtable on the biotechnology and healthcare sector, Daniel Mahony, manager of Polar Capital Global Healthcare Growth and Income, commented: “Governments and insurers need to find ways of delivering more healthcare to more people for less, or the same, money.”
He believes this has resulted in two investment trends that he defines as “consolidators” – those companies taking the costs out of healthcare systems – and “innovators”, which are firms developing products and services that disrupt existing systems and improve the quality of healthcare.
Biotech stocks are known for their volatility, with the sector overheating at times. But Sam Isaly, managing partner at OrbiMed Advisors and manager of the Worldwide Healthcare Trust, asserts that biotechnology companies of all sizes are making significant leaps. He points to several instances where they have come to market with “blockbuster” drugs in areas such as oncology and hepatitis C.
Mr Isaly adds: “A continued increase in spending and consumption of healthcare services on a worldwide basis mean that near-term fundamentals for the healthcare sector are as positive as ever.”
Grant Bowers, portfolio manager of the Franklin US Opportunities Fund, agrees. He observes that US companies have upped their research and development efforts, prompting the discovery of new cures and treatments.
But he acknowledges: “These opportunities are not just in the pharmaceutical and biotech space; we also believe prospects are bright for businesses that provide healthcare services, tools or diagnostics.”
The increased need for healthcare services and support in emerging markets is a trend Hilary Natoff, manager of the Fidelity Funds’ Global Health Care Fund, is keeping an eye on.
She explains: “Multinational healthcare companies typically generate 20 per cent of their revenues from emerging markets and this could increase significantly, with China’s healthcare market growing at an annualised rate of 20 per cent.
“Factoring in this potential growth, valuations do not seem as expensive. Similarly, many healthcare companies have strong balance sheets and high cash reserves, increasing the possibility of more deals in the sector.”
THE PICKS
Invesco Global Health Care
This $650m (£415.3m) fund, with San Francisco-based Derek Taner at the helm, has delivered solid returns to investors. The latest fund factsheet reveals its largest sector weighting is to pharmaceuticals at 48.5 per cent, followed by biotechnology which accounts for 25 per cent of the fund. In this portfolio, the US accounts for 66.7 per cent, with an allocation of 7 per cent to Switzerland. FE Analytics reveals that in the past 12 months to June 29, the fund generated 28.95 per cent, beating the 26.42 per cent gain made by its benchmark, the MSCI World Health Care index. But over 10 years, the fund failed to outperform its benchmark, which was up 200.07 per cent. The fund delivered a return of 172.89 per cent in that period.
Frostrow Capital Worldwide Healthcare Trust
Co-managers Samuel Isaly and Sven Borho are from US-based OrbiMed, the portfolio manager of this investment trust, which launched in April 1995. The vehicle has net assets of £994.1m and invests in firms across the globe that sit in the pharmaceutical and biotechnology sectors. This trust has delivered some impressive long-term returns. In the 10 years to June 29, it returned 352.14 per cent compared to the 200.07 per cent rise in its benchmark, the MSCI World Health Care index.
EDITOR’S PICK
Polar Capital Healthcare Opportunities
Daniel Mahony and Gareth Powell run this $1.03bn (£662.2m) fund, which is an Investment Adviser 100 Club 2014 member. It has a fairly concentrated portfolio of 42 positions, which includes AstraZeneca, Novartis and Biogen in its top-10 holdings. In spite of its global remit, the portfolio has 68.2 per cent allocated to North America, with just 8.8 per cent in the UK. The fund has delivered stellar returns over one, three and five years.
