By James Thorneley Antony Milford, manager of the Framlington Health unit trust, is trimming back hi...
By James Thorneley
Antony Milford, manager of the Framlington Health unit trust, is trimming back his 52.5% exposure to biotechnology stocks.
The £67m fund, which has an 82% weighting in the US, performed well in the last quarter due to share prices doubling in the biotech sector.
In sterling terms the fund appreciated by 42.8%, on a offer to offer basis over this period.
Milford said: "The correction in US biotechnology stocks in September and October proved to be a great buying opportunity as the sector surged to new highs on the back of excitement about nearly completed sequencing of the human genome."
In the early part of this year Milford thinks share prices will correct, due to the expected rise in interest rates in the US.
He is trimming back his exposure to biotech companies as a defensive move and increasing his weighting in medical services which have a current portfolio exposure of 18.2%.
Hospital stocks have already rallied sharply in expectation of more positive results and signs of a decline in fraud and abuse investigations, according to Milford.
He said: "We have been adding selectively to our holdings of quality service providers at what are very depressed prices."
Milford added: "The sector is likely to prove very defensive in the event of a significant market correction and it provides a useful counterpoise to the more momentum-driven biotechnology stocks."
Although the fund is invested in health-related companies it has zero exposure to any of the major pharmaceutical companies, because Milford has a small cap bias.
The fund has a 13.6% exposure to drug companies and these can be divided into two categories, according Milford.
He said: "The fund has exposure to smaller, more specialist companies, such as Medicis, a dermatology product company.
"These kind of companies spend little on research and development and pick up discarded products from larger companies.
"The other area I favour is generic drug companies which produce drugs when their individual patents come to an end at lower costs to the larger companies."
Milford said he expected large cap drug company stocks to rise this year because the sector has been oversold, due to political pressure for cheaper products for Medicare patients.
He said: "The drug stocks are likely to do well in a general market correction, as they entered the year heavily oversold, but we do not see them leading the market while the political clouds hang over them."
The remaining area which the fund has exposure to is medical devices with a weighting of 15.7%.
The fund is situated in the Micropal Global Specialist peer group, among technology, financial and ethical funds.
Over three years it is ranked 19 out of 25, rising by 22.5% compared with an average rise of 71.9% on an offer to bid basis.
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