Investors can choose own health risk
Contrasting fund products offer a stake in the assured market growth for big players in the pharmaceuticals and health-care industries or a more spectacular ride through the rewards and dangers of biotechnology and small and mid-cap stocks
No sooner is Sars behind us than the spectre of dengue fever looms large. Health, it seems, is on everyone's mind and this is reflected in the funds sector.
HSBC launched its capital guaranteed health-care fund at the end of July and British fund house Framlington Investment Management was in town recently to promote its health fund, among other products. The HSBC product is another twist on the guaranteed fund theme with 100 per cent capital guarantee and 5.75 per cent dividends over four years and nine months.
The fund will invest in the world's 12 largest pharmaceutical and health-care stocks. The top 10 pharmaceutical companies account for 49 per cent of market share, so this fund gives investors easy access to a slice of the winnings from a sector where global sales are forecast to grow at 6 per cent per annum over five years.
For Framlington, however, the companies that account for the other 51 per cent of sales hold the most interest, and fund manager Caspar Rock says the fund's bias away from big pharmaceutical companies will be to its advantage in the coming year. 'We are heavily weighted towards biotechnology and small and mid-cap stocks,' he said.
Mr Rock's bleak outlook for large pharmaceutical companies stems from estimates that by 2005, 50 per cent of prescriptions will be for generic drugs. Declining research and development also means large pharmaceutical companies are not bringing as many new drugs to market.
'There have already been a few flurries of concern about patent expiries and the pricing issues in the United States,' Mr Rock said.
The Framlington health fund's mid-cap bias hit it hard in late 2001 and through most of last year, partly as a result of the market's greater aversion to risk.
'This affected small and mid-cap companies more than large cap,' Mr Rock said. After three years of strong performances, the fund took a nosedive and three-year performance to the end of June is still down 28.84 per cent. But this year the fund is back up, by 28.26 per cent year-to-date to July 25 and year-on-year to the same date by more than 33 per cent.
Apart from a reversal of the risk-aversion trend, he says, the fund has benefited from good news from the health-care sector, including better than expected earnings late last year and early this year. Positive clinical data from several sources, the appointment of a new commissioner of the US Food and Drug Administration and in particular strong performance by many biotech players have all helped.
'There have been a good number of drug approvals, particularly in biotech, where we have a 35 per cent weighting, and generic drug companies have also had fantastic performance,' he said.
Health-care funds are not generally considered a core holding. It is a volatile sector but for a small portion of your portfolio it can add some interesting flavour and provide an interest in keeping up with the latest medical developments.
Mr Rock gets to hear about them before the public. He is excited by two US companies, Cyberonix and Advanced Neuromodulation Systems. Both produce devices that are implanted into the spine where they send electrical impulses into the nervous system.
'They can be used for an amazing range of conditions, including epilepsy, chronic pain and depression,' he said.
Jane Parry is a financial journalist based in Hong Kong
