Antony Milford, fund manager Framlington's Healthcare fund, says 2000 was an excellent period for th...
Antony Milford, fund manager Framlington's Healthcare fund, says 2000 was an excellent period for the healthcare sector and exceeded expectations with an early year rally in biotechnology stocks.
Milford says there is some element of healthcare stocks being used as a safehouse for tech money during volatility.
Ross Martin, an assistant fund manager on Aberdeen's UK equity team, says the healthcare sector showed 30.2% relative outperformance on the FTSE All Share, while pharmaceuticals outperformed by just over 27%.
"Both sectors have very strong defensive characteristics as they are non-cyclical and have strong fundamental demand for their products," he adds.
Martin says he particularly likes Smith & Nephew, which saw a 55% rise in 2000. Smith & Nephew benefited from having defensive characteristics, with steady demand for products such as hip replacements and prosthetics for knees.
"The company has also seen a fair amount of corporate activity in the past six months with the disposal of low growth areas to a German company which will free up Smith & Nephew to record higher growth this year," he says.
Milford says biotechnology stocks have their own cycle which does not seem to coincide with the economic cycle or other healthcare stocks.
"On a day-to-day basis, there is a reverse correlation between the behaviour of biotechnology stocks and that of the major drug stocks. This year alone biotechnology has been through four phases - strongly up in the period to 9 March, down 60% or so between 9 March and late April, then almost doubling off the April lows, before correcting over 30% on average in the latter weeks."
Framlington's prediction regarding biotech in 2001 is that there should be a lot of good news based around discoveries relating to genes and products in the clinic.
Milford adds: "Most of the biotechnology companies held are not yet profitable, so the questions asked are: when will they have a product on the market, how many years will that product last and how much profit will be made. Framlington tends to favour companies which continue with a large amount of research and development, so one of the things we look for is the productivity of that R&D.
"We also do a lot of comparative analysis, looking at the market capitalisation of particular companies working in a similar field and often finding anomalies in the smaller companies, where there is very little Wall Street research coverage."
Other companies Martin favours is Unichem, the pharmaceutical and wholesale operator, which he feels is benefiting from consolidation of the fragmented markets in Europe. Nestor, which provides healthcare workers to staffing agencies, is another he expects to continue to do well as authorities like the NHS remain understaffed.
Martin agrees that outflows from the healthcare sector are a strong possibility if there is a rally among tech stocks. "A lot of the recent strength has been as a result of the defensive nature of healthcare stocks," he says.
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