The biotech and healthcare sectors have flourished during the pandemic as companies raced to develop a Covid-19 vaccine. Those already invested have reaped the rewards, but what next? Is it time to reconsider this exposure or is there more to come?
Data from Grand View Research forecasts the biotech market to grow from $752.88bn in 2020 to $2.44trn by 2028. Similarly, genomics is expected to reach $62.9bn by 2028 driven by healthcare innovation and tailoring care to an individual patient, while providing more data on diseases and human genetics.
Investment monitoring platform Pitchbook reported that healthtech investment soared 47% in 2020 to hit a high of $51bn, with the sector already attracting £3.79bn in further funding this year.
“The accelerated innovation since the Covid-19 pandemic is astonishing – some experts say we witnessed 10 years’ growth in the last 18 months of the outbreak – giving us a glimpse of even greater possibilities, especially when some of these pacesetters, such as nanotech, genomics and digital twins are able to advance, accelerate and complement each other,” says Paul Stannard, chairman of the Vector Innovation Fund. “If it is backed by astute and enlightened investment, our future is looking bright.”
Top performers
While there are only around two dozen healthcare and/or biotech-specific funds available to investors, most of them have had a decent run for quite some time. Take the Schroder Global Healthcare fund, for example. Managed by John Bowler, the £523.9m fund has returned 519.4% since it launched a decade ago, and 18.7% over the past 12 months to 2 August, 2021.
One of the earliest healthcare funds to launch, Axa Framlington Health Care has also delivered consistent outperformance – over 10 years it has delivered 289.2% and, over the past 12 months to date, it has returned 14.3%.
In the investment trust space, the Biotech Growth Trust and Worldwide Healthcare Trust, both managed by Orbimed, and the SV Health Managers International Biotechnology Trust, are the top three funds when looking at performance over a 10-year period.
Topping the table over the past year, however, is the BB Healthcare Trust which has delivered 27.5%, followed by the Downing Four VCT PLC Healthcare at 27.3% and the Impact Healthcare Reit at 21.2%.
“Health and biotech is clearly a niche area to be invested in, so investors looking for this kind of specialised focus should have already well-diversified portfolios and a high tolerance for risk,” explains Laith Khalaf, head of investment analysis at AJ Bell.
“There are a range of companies that fall under the banner ‘health and biotech’, ranging from large pharmaceutical companies like Astrazeneca, down to small biotech companies with fairly binary outcomes depending on whether a key drug or treatment gains approval for sale. So it’s an area where a fund manager can really bring their research expertise to bear in picking a portfolio of stocks with strong credentials.”
He highlights the Worldwide Healthcare Trust as one for investors with an interest in the space, as it invests in a diversified portfolio of pharma and biotech companies.
More innovation on the horizon but sector can easily overheat
While investor interest in the biotech sector has naturally been boosted by the pandemic over the past 18 months, there are several developments underpinning the continued success of both the healthcare and biotech sectors.
Recently the FDA approved Biogen’s Aduhelm drug for Alzheimer’s disease, for example, which according to Ailsa Craig, lead investment manager on the International Biotechnology Trust, serves as a powerful reminder of the ongoing innovation that is taking place.
Fundcalibre’s senior research analyst, James Yardley, agrees: “There are lots of interesting and innovative things happing in the biotech space at the moment. We’ve seen changes with Covid, and technology may now revolutionise other areas – for example, liquid biopsies where in the future a blood test could tell you if have certain types of cancer etc. It’s very important.”
He warns, however, that the biotech space, specifically, can get overheated as a sector as it goes through cycles of investor excitement and despair.
“It can be very volatile, especially if drugs don’t get approved. It feels as if the success rate for some of the drugs is a bit higher now and artificial intelligence is starting to help the space, with better tools helping to show early what may and what may not work,” he says.
Yardley highlights the Polar Capital Biotechnology fund, which he admits has not had the best year in terms of performance, but does have a very good long-term track record and a strong team behind it led by David Pinniger.
“Biotech is one area where you do need to have a specialist manager to get the best out of it. They need to understand the trends, the drugs and the science. The fund had a very good 2020 and cooled a bit in February, so it may not be a bad time to invest for those with the appropriate risk appetite,” he adds.
