Geoff Hsu, manager of the Biotech Growth trust, tells Cherry Reynard why he is confident the well-performing sector has even further to run.
Healthcare has been one of the notable winners of the past 12 months, but nowhere more so than biotechnology. Long unloved in the nervous post-credit crisis environment, it has shot ahead since the start of this year, delivering, in many cases, triple digit returns.
While all biotechnology funds have risen with this tide, the Biotech Growth trust, run by US healthcare specialists OrbiMed, has been the stand-out performer.
Manager Geoff Hsu took over the trust in 2005 when OrbiMed changed the investment remit. Previously known as the Finsbury Life Sciences trust, the fund had been focused exclusively on the nascent European biotechnology sector, but had performed poorly and was stuck on a significant discount to net asset value (NAV).
Biotech Growth trust manager Geoff Hsu on talking to physicists
Hsu refocused the fund on global biotechnology, though, in practice, this meant significant weightings in the US, which still has the richest seam of established biotechnology companies.
Hsu focuses on three main areas of biotechnology and will alter the weightings in the fund depending on which area offers the most compelling valuations: the first group comprises the well-established, profitable, large-cap names, such as Amgen and Celgene.
These companies are the backbone of the portfolio and its largest holdings. Celgene, for example, is around 10% of the portfolio. Hsu says the group is still very bullish on these companies, which are seeing an acceleration in earnings on the back of new product launches. Around half of the portfolio is currently in this type of stock.
The remaining two areas are more speculative. One consists of the mid-cap biotechnology companies, which are still emerging but are either newly profitable or have a clear path to profitability. These companies have seen significant merger and acquisition (M&A) activity, which has been a boost to overall portfolio returns in recent years.
The final category is early-stage biotechnology companies, which are not profitable and are likely to be developing their first product. In assessing these companies, Hsu says he is trying to “get ahead of the science”. He looks at phase II clinical trials and what is likely to work.
The OrbiMed team can claim some experience here. Hsu himself has a scientific background, having trained as a doctor before moving into the investment side. OrbiMed, which also manages the more diversified Worldwide Healthcare trust, runs around $7bn in dedicated healthcare funds and has a team of over 70 investment professionals, many of whom also have scientific training.
This article continues…
Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
Needs to apply for authorisation