The healthcare sector has certainly not been the defensive sector many had hoped for during 2004. Pa...
The healthcare sector has certainly not been the defensive sector many had hoped for during 2004. Patent expiries, drug specific disappointments and changes to Medicare/Medicaid all caused sentiment towards the sector to turn south. Although pharmaceuticals and some of the larger biotech companies will indeed suffer from price cuts on drugs in the US, it is expected that the increase in volumes will offset this for a large part. Patent expiries will continue to affect the large pharma companies but other companies will benefit. The sector is supported by demographic trends in the US, Europe and Japan as there is a positive correlation between an ageing population and healthcare spending. It obviously is hard to predict what the sector's performance will be next year but it is hard to imagine that sentiment can deteriorate further from here.
We have closely followed the JPMF Global Healthtech Fund for some time and have been impressed by its stable performance record. Accordingly we introduced it into our rating service in September 2004 with an initial Forsyth Partners A Rating. The fund invests in a globally diversified portfolio of healthcare companies, including pharmaceuticals, biotechnology, healthcare services and medical technology to ensure that it is well diversified over the different sub-sectors. The fund's exposure to biotechnology companies is limited which protects it from the higher level of volatility these stocks generally display.
The fund is managed on a bottom-up basis by a team of seven healthcare analysts who receive guidance from two co-ordinators. The co-ordinator communicates with the analysts on a daily basis to ensure the portfolio's exposure to a certain company is a reflection of its ranking and the best ideas of each region's analysts are represented in the portfolio. The analysts execute their own trades while the co-ordinator monitors the portfolio's risk statistics and its deviations from the index at the sub-sector and regional level. The team analyses companies on the assumption every asset has a fair value based on its longer-term fundamentals. Companies are analysed on both a qualitative and quantitative basis with a particular focus on cashflow analysis. Although the majority of research takes place internally, the team also makes use of external sources to verify their own analysis.
Although driven from the bottom-up, the majority of assets will be invested in pharmaceutical companies. Investments in biotechnology and medical technology companies are officially limited to 25% but in reality they are unlikely to exceed 20% of assets. The portfolio will typically feature 40-70 positions.
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