While biotech and pharmaceutical firms rush to find a vaccine to curb epidemic COVID-19, healthcare and biotech funds have been unable to escape the global sell-off, according to data.
Data from FE Analytics found that despite strong returns over the three years to 28 February, 2020, healthcare and biotech funds had lost substantial ground since the virus’ spread started rapidly increasing in mid-February.
Since COVID-19 was first identified in December, 2019, healthcare and biotech funds, within the Australian Core Strategies universe, have mostly still made gains with Platinum International Health Care fund returning 6.1%, L&G Healthcare Breakthrough Ucits ETF at 5.14%, ETFS S&P Biotech ETF at 1.68%.
However, BetaShares Global Healthcare ETF Currency Hedged lost 8.9% and CFS Wholesale Global Health and Biotechnology lost 0.09%
Healthcare/biotech funds v indices returns since COVID-19 was identified in December 2019 to 28 February 2020
However, over the three years to 28 February, 2020 the funds had experienced steady growth and strong returns with a sharp increasing trajectory since December 2018.
The best performing fund during this period was also the Platinum fund with a return of 56.8%.
Healthcare/biotech funds v indices returns over the three years to 28 February 2020
Speaking to Money Management, Platinum’s healthcare portfolio manager, Dr Bianca Ogden, said while inflows had been steady over the last 18 to 24 months, biotech funds were often seen as risky and expensive.
“The interesting part is we’ve been here before and usually these are the best opportunities for companies that do make the products that we require for the things like the COVID-19 outbreak,” she said.
“While I’m not happy that things go down, it makes me quite excited because the market has been quite expensive and we can finally get companies that we wanted to own before that were too expensive to buy previously. These companies are producing new technologies and new waves of coming up with new drugs for new diseases.”
Ogden noted that while healthcare and biotech funds did cost a lot of money, in the end investors needed to think about the longer-term application.
“We have a lot of immuno-oncology firms and new drugs for neurological diseases and we look at the pipeline of what is coming through and that’s what is important to us,” she said.
Myths
Failure, Ogden said, was normal in the biotech industry and often investors were put off when biotech companies failed. However, she said that these companies were often quite good at pivoting.
She said often biotech firms listed too early and investors were lured by a story rather than facts and when the firm “exploded” they would get put off by the entire sector.
“The funny thing is as soon as there is a success story like CSL – great company, very well run but from a valuation point of view and a global perspective its expensive but locals believe they can never fall but never say never,” Ogden said.
“Failure in this industry is normal and it is celebrated but you have to go in and understand which is the good one to buy. Look at the returns of moment. If I look at annual returns my fund has performed better than international funds and so I don’t understand why people believe biotech is volatile.”
Advisers and investors looking to invest in a biotech or healthcare firm should look for people running the organisations that knew their science and how to terminate projects, Ogden said.
“They need to have a strong personality, know their science, and be motivators. When things fall over they need to be able to motivate their people, stay ahead, and understand what the competition does,” she said.
For the moment, Ogden said she was not changing her portfolio too much, off the back of the global sell-off, as overreacting could “destroy your long-term”.
