In what should be a blossoming time for pharmaceutical companies, AstraZeneca announced weak third quarter results, sending shares falling 5 per cent on Thursday. 
The Brexit vote earlier this week, which has sent the pound tumbling some 15 per cent against the US dollar so far this year, was seen as a positive for the healthcare sector.
The US is the largest market for the healthcare industry and many expected the UK-based healthcare firms to benefit from this shift. And more recently, the announcement that Donald Trump had won the presidential election was seen as a boon for the sector.
But results this week put a dark cloud over the company.
Angel Agudo, portfolio manager of the Fidelity American Special Situations fund, said: “Sector-wise, the health care sector should witness an initial uplift following Mrs Clinton’s loss in the election and its future path will be decided once Mr Trump come out clearer with his plans on the Affordable Care Act (Obamcare) and drug pricing.”
Performance of index in 2016
Source: FE Analytics
The FTSE 350 Health Care index has performed well this year, returning 13 per cent to investors, with particular improvements in the immediate aftermath of the Brexit vote and US general election.
Ketan Patel, fund manager at EdenTree Investment Management, said: “The pharmaceutical sector has been blessed with two recent seismic events – Brexit in June and now Donald Trump’s sweeping victory in the US Presidential election.”
However, pharmaceutical giant AstraZeneca painted a worrying picture on Thursday with weak third-quarter numbers.
Patel added: “AstraZeneca reported weak Q3 results, although earnings per share were boosted by a one-off tax benefit.”
The firm’s revenues fell 4 per cent in the three months to September to $5.7bn, with earnings per share of $0.8 boosted by a one-off $0.36 tax benefit.
It may not be all bad news, Patel says, with sales in its growth platform which includes emerging markets, diabetes and oncology remaining strong, but concerns over increased generic competition in the US has sent investors fleeing.
“The news flow in the pipeline, especially immuno-oncology, will be a key driver of share price in the near to medium term,” he said.
The stock, which is 4.58 per cent down on the year-to-date, ended Thursday’s session 3.72 per cent lower on the back of the disappointing results, but had fallen as much as 5 per cent during the day. By mid-morning on Friday, the stock was another 2.8 per cent lower at 4,820.50p.
Performance of stock in 2016
Source: Google Finance
Almost a third of funds in the UT UK Equity Income sector have AstraZeneca among their top 10 holdings, making it the fourth most popular stock in the UK behind Imperial Brands, GlaxoSmithKline and BP.
As well as this 22 funds hold more than 5 per cent of their portfolio in the stock, with SJP UK High Income the highest weighted at 9.51 per cent.
The fund aims to avoid overvalued stocks and focus the portfolio towards the most attractively valued opportunities.
AstraZeneca is the largest holding of the £1.7bn fund, run by FE Alpha Manager Neil Woodford, known for his defensive nature and particular fondness for pharmaceutical stocks.
Indeed, healthcare is the largest sector weighting in the fund, with the likes of rivals GlaxoSmithKline and European giant Roche among the top 10 holdings.
Also on the list of the top 10 funds with the highest weighting to AstraZeneca’s shares is the FE Alpha Manager’s £9.1bn CF Woodford Equity Income fund, with 8.54 per cent of the portfolio in the company.
Source: FE Analytics
Also of note among the funds is the five crown-rated Threadneedle UK Equity Income fund, run by Richard Colwell.
The £3.1bn fund has a 7.5 per cent weighting to Astra, but also has 7.1 per cent of the portfolio in GlaxoSmithKline, making them the largest proportion of the fund.
Square Mile Research said: “We see this strategy as a sensibly run UK equity income fund, which has a bias towards larger companies. The fund's yield requirement does lean the portfolio towards more valuation dependent situations as opposed to growth opportunities.”
Of the above, nine out of the 10 are income funds, with AstraZeneca offering a 4.5 per cent dividend.
Patel said: “The shares have underperformed significantly both GlaxoSmithKline and the FTSE 100 year to date. In a low yield environment, the 4.5 per cent dividend will provide some comfort to long-term shareholders who may be questioning why management rebuffed the £70bn bid by Pfizer earlier in the year.”
He adds that investors should not give up on the sector as a whole, with drivers previously mentioned likely to boost the industry for some time to come.
“For long-term investors, the sector remains highly appealing trading on a double-digit discount to the overall market and offering yields in the range of 4-5 per cent in the UK and 3-4 per cent in Europe and the US,” he said.