John Bowler, manager of the Schroder Global Healthcare fund, talks to Cherry Reynard about the calls that have driven him to be the standout winner in such a crowded space.
Thematic funds became fashionable in the early 2000s, as groups sought to respond to an increasingly globalised world and harness some of the major investable trends of the next decade and beyond.
Healthcare was an obvious choice, with the tailwinds of an ageing developed world population and an emerging market middle class demanding better standards. The standout winner in the sector has been the Schroder Global Healthcare fund.
Manager John Bowler is keen that the fund be an ‘all-weather’ strategy, achieving a balance between defensive areas, such as large-cap pharmaceutical stocks, and racier areas such as biotechnology or medical devices.
“ The biggest gains in healthcare have come from innovation ”
“While over the long-term, the biggest gains in healthcare have come from innovation, it is about reducing the volatility of those returns,” he says.
A giant pharmaceutical group may require a different type of analysis to a biotechnology company but there is certain criteria he seeks in all the companies in which he invests.
“Too often, companies raid the larder of large-cap pharmaceuticals and try to reinvent the story around them. We want a good scientific rationale for the technology a company is offering,” he explains.
The manager looks for companies with credible research and development engines. This means an examination of every new product, asking whether it will add to overall revenues for that company and whether it will prompt an acceleration in sales growth or a boost to margins.
Bowler, who is a scientist by training, has seen this approach reap significant rewards during his near-decade at the helm of the fund. It is up 111% over five years, compared to the IMA Global sector’s average of 46.9%.
One of Bowler’s most successful themes has been the rehabilitation of large-cap pharmaceutical companies. Long unloved by the market as investors fretted about the ‘patent cliff’ (a series of blockbuster drugs coming off patent and, therefore, open to competition), he saw cashflows were proving more resilient than originally expected.
He also saw management taking a fresh approach to capital allocation, imposing better cost discipline and returning cash to shareholders.
Yield investors led the way in chasing large-cap pharmaceuticals but now growth investors have started to get involved as well. Bowler remains excited about some of the new developments in the treatment of cancer, where large-cap pharmaceuticals stand to be a key beneficiary.
“I am heartened by the degree of innovation in the treatment of cancer. Pfizer, for example, now has an ALK inhibitor, which generates a response in 50%-60% of lung cancer patients. Chemotherapy, even when administered early enough, only has a 25% response rate,” he says.
Bristol Myers Squibb – which is now through its patent cliff – is also in the vanguard of these new targeted cancer therapies.
Elsewhere, Bowler has recently been investing in medical devices companies. They had undergone a similar de-rating process to the large pharmaceutical companies but there is new management and restructuring in progress.
The manager also sees opportunities within the services and health insurance areas.
There are areas, however, where Bowler says valuations are too high, notably in biotechnology. He is valuation sensitive and, after two years of strong performance, he is seeking out the next wave of potentially successful companies and reallocating capital there.
The fund remains significantly weighted to the US, simply because that is where Bowler finds the greatest breadth of investment opportunities.
The country is also leading innovation and is, therefore, where he can find the best examples of the ‘good science’ fundamental to his approach.
The CV: John Bowler
John Bowler has managed the Schroder Global Healthcare fund since 2004. He also runs the Schroder Medical Discovery fund. He joined Schroders from AXA Investment Managers in 2003, where he had been since 1998 in a global healthcare research role. He started his career at Hill Samuel Asset Management as a graduate trainee in 1994.
Percentage growth return over five years
Despite improved risk appetite
FOS award limit increase
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