The world’s generally accepted most profitable industry is pharmaceuticals.
A report by Factset found pharma enjoyed overall net margins of 30% in 2016, and it is easy to see why when some patients, especially in the US where drug prices are unregulated, are expected to shell out six-figure sums for a course of life-saving treatment.
In fact, pharma margins have become so conspicuous that Donald Trump has now picked up the issue as a cause célèbre, wiping millions off the market with a Tweet promising action earlier this month.
The pharma sector finds itself in fine company at the top of the list of high-margin sectors. It is joined by tobacco (27.2%), biotechnology (24.6%) and various banking sub-sectors.
But lurking in second place on the margin list is a sector that for Portfolio Adviser readers is a little closer to home – investment management (29.1%).
According to the Investment Association’s 2016 Asset Management Survey, the industry delivered operating margins of 34%, in further confirmation that costs are much lower than revenues.
The secret of the industry’s margins is its ease of scalability on fixed costs. Under ‘ad valorem’ charging, where a percentage of assets under management is taken regardless of the size or performance of a fund, profits can rocket when products grow.
