Skip to the content

The funds cashing in on the global healthcare crisis

08 September 2013

A growing number of funds are positioning themselves to benefit from aging populations in the West and greater health spending in the developing world.

By Thomas McMahon,

Senior Reporter, FE Trustnet

Healthcare and biotechnology companies have had a storming few years on a global scale, with the UK pharmaceutical sector getting in on the action this year too.

The FTSE World Healthcare Index has made 71.49 per cent over the past three years, according to data from FE Analytics, with the FTSE World index, which includes stocks from all sectors, up 38.59 per cent.

Performance of indices over 3yrs


Source: FE Analytics

While all sectors go through periods of outperformance, advocates point out that the success of the healthcare industry is being driven by long-term trends that make it a good prospect for the adventurous investor.

An aging population in the developed world means that people are living longer and demanding more care while they do so, often in the form of medicine.

As developing countries climb out of poverty they are also proving to be a source of demand for better and more sophisticated treatments.

Innovation is also driving the development of more sophisticated drugs, utilising new areas of scientific knowledge.

Nathalie Flury (pictured), manager of the JB Health Opportunities fund, says that these factors should allow the sector to outperform for some time to come.

ALT_TAG "We believe this performance is more than a short-lived rally: it is a turnaround in the sector’s fortunes which is underpinned by demographics, emerging markets and a new product cycle fuelled by innovation," she said.

"Current valuations do not reflect the strength of these drivers of sustainable long-term growth," she added.

"Healthcare is a huge sector, accounting for 10 to 15 per cent of GDP in developed markets. The predictable cash-flows it offers translate into lower share price volatility, and rising dividends provide a stream of growing income."

"While valuations have come off their lows, there is potential for further multiple expansion which, when coupled with rising earnings, leads to promising future investment returns."

JB Health Opportunities is an $18.5m fund domiciled in Luxembourg that has performed roughly in line with the sector since launch in November 2010.

Data from FE Analytics shows that it has returned 64.94 per cent to investors in sterling terms while the average offshore health and biotech fund has made 62.95 per cent.

Performance of fund vs sector since Sep 2010


Source: FE Analytics

The strong performance of the healthcare and pharmaceuticals industry is clearly visible with a glance at the top-performing funds in the IMA Global sector.

The £107m Schroder Global Healthcare fund is the second-best performer in the sector over both three and five years, having made 65.16 per cent over the shorter timeframe.

The £109m L&G Global Health & Pharmaceutical Index fund is third over that time frame, with returns of 63.36 per cent.

The funds remain relatively small, however, perhaps reflecting investors’ reluctance to purchase products that are so specialised. Funds concentrated on one sector are inherently more risky.

The UK pharmaceuticals industry has only caught up with the surge this year, with data from FE Analytics showing the sector has made 25.09 per cent year-to-date compared with 14.84 per cent for the whole market.

Performance of indices in 2013


Source: FE Analytics

One manager who is reaping the benefits is FE Alpha Manager Neil Woodford, who runs the giant Invesco Perpetual Income and Invesco Perpetual High Income funds.

The manager is now profiting from taking a big position in the sector a couple of years ago, when it was unloved by the general market.

Earlier this month he reaffirmed his commitment to the sector, saying that he believes the industry is going through a new flowering of innovation that should support it for years to come, much of it centring around the development of personalised medicine.

It is an opinion that Flury shares.

"In 2012 the Food and Drug Administration (FDA) approved 39 new medicines, the highest number since 1997," she said.

"The list included four ground-breaking treatments, 10 drugs to treat cancer and also new therapies for HIV and macular degeneration, which causes blurred vision and blindness."

"Two of the drugs represent advances in personalised medicine, the science that uses genetic and other biomarker information to identify patients most likely to respond to a specific treatment."

Flury says that in the US, the length of the approval process for new drugs has shortened substantially, with the average time roughly half of what it was 20 years ago.

Investors who want to get exposure to the sector could buy a generalist fund such as Woodford’s, which has a high weighting to the sector, or alternatively buy the stocks he holds.

The manager certainly seems to think they have plenty of potential in them, and he has large positions in GlaxoSmithKline and AstraZeneca in particular.

FE Alpha Manager Mark Martin is another generalist manager to have a high opinion of the sector.

He told FE Trustnet last week that healthcare companies aiming to expand into the third world were attractive at this point in time.

He tipped Consort Medical as a mid cap stock he finds particularly interesting.

Investing in single stocks is riskier than funds, of course, but it is one option investors have if they feel strongly about this sector.

Editor's Picks


Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.