Healthcare stocks in the US remain depressed but within that sector strong momentum remains for biot...
Healthcare stocks in the US remain depressed but within that sector strong momentum remains for biotech companies.
The broader healthcare businesses have become a casualty of the global focus on strong growth stocks like technology and telecoms. Meanwhile, healthcare reforms that are expected amid the US presidential election campaign have exacerbated underperformance in the sector. The biotech companies, which focuses on genetic rather than chemical-based products, continue to gather momentum.
During 1999, the S&P Biotech Sub Sector Index was up 130% in dollar terms, and has risen an extra 21% since then. This compares to the broader healthcare sector, which fell by 9.3% over the year ending 1999 and a further 5% since the start of 2000. Biotechs also outperformed the S&P 500, which was up by 19.5% in dollar terms from the start to the end of 1999 but has fallen by 9% since the start of 2000.
Among companies which have enjoyed strong rally in performance are Amgen which started 1999 at $26, finished the year at $60 and is now around $74. Qiagen started 1999 at $30, ended the year at $75 and has since risen to $186.
Paul Kleiser, US fund manager at Scottish Equitable Asset Management, attributes the rise in biotech companies to the "sector's coming of age" as well as the flow of funds into the sector.
He says: "Biotech companies have matured and are now developing products which are selling. Until last year, these companies were really just selling on the prospects of the future, somewhat like many of the dot.com companies are doing now." Share prices have also been driven up as fund managers turn to this better-performing sub sector to gain the best results from their healthcare exposure, and as technology funds increasingly diversify into these stocks.
Kleiser says: "As traditional pharmaceuticals continue to underperform, fund managers have diverted their allocations within the healthcare sector to stronger-performing biotechs. Meanwhile, managers of technology funds have also turned to biotechs as a means of diversifying their portfolios.
"Biotechs as a sector is quite small. It now accounts for around 1% of the S&P 500 index, which is a big increase on this time last year. Some technology fund managers are putting as much as 5% of their portfolio into biotechs, leading to the price being pushed up quite significantly."
Scottish Equitable does not hold any biotech companies in its main US fund, because of this portfolio's restricted investment universe, however 2% of its technology unit trust is invested in this sector.
Zanny Perring, US fund manager at Threadneedle is positive on biotechs as a sector but is restricted in holding many of these companies in the American Growth Fund because of their small market caps. The only biotech held in the American Growth Fund is Amgen.
In the American Smaller Companies Growth Fund, Perring holds Abgenix, which she describes as having a good technology platform, solid management and strong joint venture partnerships.
Market anticipates a May hike
Newly-formed Mobius Capital Partners
Failed to meet yield requirments
Almost tripled year-on-year
Stochastic modelling for decumulation