Biotechnology is just as exciting a sector for investors who either missed out on the technology bull run or are looking for more attractively valued alternatives, according to Janus Henderson’s James de Bunsen and Pete Webster.
Nasdaq continues to power ahead of its domestic, and global, peers, while Apple and Amazon recently became the first corporates to pass the $1 trillion market cap barrier. But there are questions over valuations, despite many bullish on the sector attempting to find new, innovative ways to value these stocks to make them look cheap.
But de Bunsen, who co-manage the Henderson Alternative Strategies Trust (HAST) with Webster, says the pair “feel like we’ve missed the party” on tech. However, he adds: “Everyone’s very excited about tech and developments in that area, but I think biotech is equally exciting - the advancements they’re making in genome stuff and cancer therapies in particular.”
The trust prides itself on allowing shareholders to access areas they wouldn’t otherwise be able to gain exposure, and holdings include a Cuban property company, hedge funds and private equity funds.
But in their "specialist" bucket, they access more run-of-the-mill parts of the equity market through specialist managers. They hold, for instance, Polar Capital Global Financials (PCFT), as well as 3i (3IN) and HICL Infrastructure (HICL).
Biotech Just As Exciting as Technology
But one area they are particularly positive on is healthcare and biotech. Here, they own the Morningstar Silver Rated Worldwide Healthcare (WWH) and Biotech Growth (BIOG), run by Frostrow Capital and OrbiMed Capital respectively.
The portfolio managers of both these offerings did medical-related degrees and have worked for some of the largest pharmaceutical firms in the US, adds de Bunsen. “They properly know what they’re doing.”
The case for healthcare is generally put to investors as a straightforward one. Many countries currently have an ageing population, which means healthcare spending will continue to rise around the world.
Drug pricing being used as a political football is always a risk to the downside, particularly with US mid-term elections just around the corner. But Webster thinks that’s been overdone, with the generic drugmakers more at risk than the innovators.
“Now you’ve got an FDA that is really backing innovation in the healthcare sector,” Webster explains. “They’ve shortened the time it takes for drugs to be approved and you’re seeing more drugs approved than you have in the past.”
Valuations are attractive, too, while Webster expects generalist fund managers who left the sector in 2015 and 2016 to return soon.
But it’s the economic cycle that gives the managers most conviction. “A late cycle favours healthcare,” Webster adds. While a late cycle also favours areas like utilities and telcos, the pair say they are less enamoured with either of those sectors. “So, if we want a big defensive sector it’s probably going to be healthcare.”
