Introduction
But funds and investment trusts offering exposure to healthcare and biotechnology are still considered fairly niche. A quick search of unit trusts and closed-ended funds in FE Analytics with ‘healthcare’, ‘biotech’ or ‘biotechnology’ in the name brings up only 14 vehicles.
For investors with long-term time horizons, healthcare may be worth a look. Data from FE Analytics shows over three years to June 29 2016, the MSCI ACWI Healthcare index was up 59.3 per cent, while the Nasdaq Biotechnology index made an impressive 67 per cent gain.
In particular, fund managers are eyeing the healthcare opportunities in Asia. Jupiter Fund Management’s Jason Pidcock, who manages the Jupiter Asian Income fund, says: “A key concern for the newly affluent and newly mobile in Asia is healthcare, with differing standards of state healthcare provision across the region creating a growing market in health tourism.
“Increasing demand for offshore healthcare options has prompted healthcare companies to construct private hospitals close to population centres. The best of these projects may be well placed to help these businesses generate strong long-term returns.”
| FUND PICKS |
Polar Capital Healthcare Opportunities This $921m (£693m) fund is managed by Daniel Mahony and Gareth Powell who invest in a globally diversified portfolio of healthcare companies. Data from FE Analytics shows the fund generated a return of 126 per cent in the five years to June 29. In the past year to June 29 the fund, like many of its peers, has entered negative territory. Mr Mahony has run the fund since launch in 2007, using fundamentally driven analysis and stock selection. The top-three holdings are Roche, Medtronic and UnitedHealth Group. Pictet Biotech This £847m fund invests in companies operating in medical biotechnology. While the strategy is not restricted by geography, the factsheet states the majority of investments are made in North America and Europe “given the particularly innovative nature of the pharmaceutical industry” in those regions. The portfolio has an allocation of 86.4 per cent to the US and a 3.3 per cent cash holding. According to FE Analytics, the fund delivered a 227 per cent return in the 10 years to June 29. EDITOR’S PICK The Biotech Growth Trust Richard Klemm and Geoffrey Hsu of OrbiMed Capital seek capital appreciation through investing in the global biotechnology industry. This £358m vehicle launched in June 1997 and has 33 holdings, according to its factsheet, to the end of April. Among its top-10 positions are Amgen, Gilead Sciences and Vertex Pharmaceuticals. A regional breakdown shows 84.2 per cent of the portfolio is exposed to North America, with a 7.7 per cent allocation to the Far East. Over 10 years to June 29, the investment trust delivered a 473 per cent return, compared with the AIC IT Biotechnology and Healthcare sector average of 308 per cent. |
Dale Nicholls, portfolio manager of the Fidelity China Special Situations fund, says: “Healthcare is fast becoming one of China’s new engines of growth and we are seeing some strong research and development capabilities emerge.
“Hutchison China MediTech, a drug innovator focused on oncology and immunology, is an example of a high-conviction holding in this area. Its stock price has struggled recently, but I am positive on the long-term investment case given its product pipeline and strong drug-specific partnerships with global healthcare leaders such as AstraZeneca and Eli Lilly.”
Healthcare stocks are also able to weather the uncertain conditions in the UK, following the decision to leave the EU, as many have global exposure.
As Mark Martin, head of UK equities at Neptune Investment Management, points out, some of its healthcare holdings “stand to benefit from the weakness in sterling through currency-related earnings upgrades”.
But there are potential storm clouds on the horizon for the sector with the impending presidential election in America.
Linden Thomson, manager of the Axa Framlington Biotech fund, says: “Political uncertainty will remain a headwind as we move towards November’s US election. Drug pricing is a popular source of rhetoric for politicians and an emotive issue for voters. But in the near term, we see little appetite from US lawmakers to pass aggressive drug price control legislation.
“We believe those companies producing innovative therapies addressing unmet medical needs are less likely to suffer from pricing pressure relative to those companies whose drugs are undifferentiated.”
Angel Agudo, portfolio manager of the Fidelity American Special Situations fund, agrees: “Healthcare stocks could witness volatility if there are further comments around pricing.”
However, he adds those companies able to innovate will maintain their pricing power.
