Baillie Gifford has been increasingly backing healthcare stocks, with the fund house putting this down to ongoing innovation in this area.
The Edinburgh-based fund house now has 15 per cent of its roughly £300bn assets under management in healthcare stocks.
Rose Nguyen, who runs the Baillie Gifford Health Innovation fund, said healthcare has reached a tipping point, similar to that which drove technological progress in recent decades.
In addition to the £100mn Health Innovation fund, which launched in 2020, Nguyen works as part of the broader healthcare investment team at Baillie Gifford.
She said that in addition to the company having around 15 per cent of its total assets in healthcare, among the unquoted portion of its total assets this rose to 25 per cent.
The managers of the Scottish Mortgage investment trust are also significantly invested in biotech, with the trust’s co-manager Tom Slater previously telling FTAdviser that biotech, rather than the sort of traditional technology stocks that had previously driven performance, was where he saw the greatest opportunity.
The Scottish Mortgage investment trust now has three healthcare stocks among its top 10 holdings.
Read more: Baillie Gifford's £30bn problem
Nguyen said healthcare was experiencing a phenomenon similar to the Moore’s law effect in computing.
In computing, Moore’s law states the computing power per unit of cost roughly doubles every two years, enabling innovation to occur.
She said the cost of genome sequencing is falling at a far greater rate and this is helping to drive innovation in healthcare, particularly in the treatment of heart diseases and cancers.
Nguyen added traditional healthcare firms would struggle to innovate at the pace of biotech firms because the former are more bureaucratic in structure and tend to not want to focus on products which can prevent a specific disease.
But smaller biotech firms are able to focus on specific problems, an approach made more economical by technological advances.
She said biotech has sold off over the past year as investors have adjusted their expectations around interest rates and fled to more defensive assets.
The largest investment in the Scottish Mortgage investment trust is Moderna, a firm which was involved in the creation of one of the first Covid 19 vaccines.
Nguyen said: “The share price has now fallen to the level it was at before it discovered a working vaccine, the market is completely discounting the progress it has made and the value of the MRNA technology it uses.”
In order for an investment to make it into the Health Innovation fund, the investment managers must believe that it can make 2.5 times its money within five years.
david.thorpe@ft.com
