HEALTH-CARE STOCKS have underperformed equity markets over the past four years. According to Standard & Poor's, the MSCI World Healthcare Index rose by 10.9 per cent last year, falling well behind the MSCI World Index, which increased almost twice as fast. However, it is almost a mantra that investment funds should never be bought based on past performance, and this may well apply to a sector that Anne Marieke Ezendam, lead investment manager of the Threadneedle Global Healthcare Fund, believed to possess 'good long-term growth potential', despite the malaise now afflicting pharmaceutical companies.
The company won the three-year health-care sector trophy in the Fund Awards 2007.
Share prices in the pharmaceutical industry, which makes up the bulk of the market capitalisation of the sector, have been undone in recent years by a severe case of bad news - including the prospect of major patents expiring, the lack of new products in the R&D pipeline and worries over costly product recalls.
With pharmaceutical stocks beaten up, Ms Ezendam geared the Threadneedle health-care fund towards growth opportunities in the biotechnology sector, and looked to sniff out restructuring stories, which would add value to the companies involved, and medical services providers whose shares were trading at inexpensive valuations.
The fund's stocks are split into five baskets and are weighted 45 per cent in pharmaceuticals, 18 per cent in biotechnology, 16 per cent in medical technologies, 15 per cent in medical services and 6 per cent in others.
'The investment style is theme-based, driven by improving fundamentals. This style can be adapted to market conditions when necessary. At the moment, most of the positions are based on a new technology or trends. When these get too expensive you'll see more health-care services names crop up in the portfolio,' Ms Ezendam said.
'Some of the themes are based on new breakthroughs in disease areas such as diabetes and cancer, or improving fundamentals, often driven by obesity. Examples in this case would include cardiovascular risk in the medical technology sub-sector or increased demand for [hip and knee replacements],' she added.
