EquitiesNov 20 2015

Aviva’s Denham ramps up healthcare overweight

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Aviva’s Denham ramps up healthcare overweight

Aviva Investors’ Mark Denham has been adding to an overweight position in healthcare stocks as part of a search for companies that can prosper regardless of economic growth.

Mr Denham’s £148m Aviva Investors European Equity fund has 32.7 per cent of its assets in healthcare stocks, its latest update shows.

The position already represents an overweight of nearly 20 percentage points compared with the vehicle’s benchmark, the FTSE Europe ex UK index, but he said he had been adding to it further.

The manager said he “supported the capital raising of stocks we own in the sector”, while also initiating new investments in UK firm Allied Minds, German business Probiodrug and newly listed UK company Faron Pharmaceuticals.

In addition to these smaller stocks, Mr Denham also added money to Swiss giant Roche because he “felt its new drug for multiple-sclerosis was being overlooked by the market”.

The manager’s focus on healthcare stocks and also the technology sector comes down to his desire to find companies that generate returns in spite of low economic growth.

He said the Aviva “house view” was that while the “European economy has undoubtedly recovered”, it did not “expect an acceleration in growth”.

In such a scenario, Mr Denham said he did not want to have much exposure to companies that “rely on an economic upswing”, such as cyclical sectors in the market.

Instead, he said he preferred “companies that can innovate and create value themselves”, such as these healthcare and technology sectors.

Technology accounted for 12.4 per cent of his fund at September 30, another overweight relative to his FTSE Europe ex UK index benchmark.

The growth potential of these two sectors has seen them become popular with other investors too, and Mr Denham acknowledged many stocks looked expensive.

But he added: “We think the opportunities still merit further upside”.

The high valuations on many biotechnology stocks meant the pullback in the sector was quite severe earlier this year.

Investors began to get concerned with pricing of biotechnology drugs in the face of critical comments from prominent figures in the US, including Hillary Clinton.

But the manager said he was “not fazed” by the correction and used it to add to some of his holdings.

He said given the strong performance of the sector, it was “inevitable” there would eventually be some pullback, but the bigger trend was still intact.

“We are in a great period in healthcare in which companies are reaping the rewards from the progress that’s been made in the past 20 years,” he added.