Schroder is kicking off the second Isa season by launching a global
healthcare fund and analysts believe its timing could not be better.
The healthcare sector has been driven by biotech stocks and valuations
have soared. But the jitters in technology stocks have caused biotechs to
plunge and analysts expect this could open up a buying opportunity.
Framlington sales & marketing director Craig Walton says: “The biotech
story has got way ahead of itself. Tech funds and smaller companies funds
have been piling into them because they think they are like internet
But people are living longer and healthcare provision is moving into the
hands of private sector, which should boost the healthcare market over the
Schroder is aiming to capitalise on companies making new advances in the
field of medicine and takeover activity in pharmaceutical stocks with the
launch of its Medical Discovery fund.
Its move is not surprising given the performance of the only two
healthcare-related unit trusts on the market, the Framlington health and CF
The Framlington fund has seen its most dramatic growth during the last few
months, with its price per unit rocketing to a recent high of 760p from
270p last October. But the recent tail-off has seen the price fall to 581p.
The main driver of Framlington's outperformance has been the surge in
biotech stocks. These accounted for 53 per cent of the fund until last
month but the weighting has reduced to 45 per cent.
The rest of the portfolio is split evenly between drugs and drug delivery,
medical devices and medical services.
The CF fund is the fourth-best-performing unit trust over the year with a
return of 171 per cent. But while the performance of the two funds is
enough to woo any would-be investor, analysts warn that the sector is
volatile, particularly in the biotech area.
A classic example of the sector's volatile nature is biotech company
Cambridge Antibody. Its share price has been as low as 165p in the last
year but it has also hit a high of £52.50. It now stands at £22.37.
Hargreaves Lansdown head of research Mark Dampier tipped the Framlington
fund at the beginning of the year and he also favoured Rothschild's
international biotechnology investment trust.
But he called the market correctly and sold all his holdings a few weeks
ago. He says: “Framlington's fund was up by 130 per cent at one stage since
I bought it last November.
“But it is an extremely volatile and specialist area. I do not think the
sector is ready to be a core holding in a portfolio and should only be
about 2 per cent. The correction could open up a buying opportunity later
in the summer.”
Schroder insists its fund is not a biotech fund and says it will cover a
broader remit of medical companies.
Client services director Robin Stoakley says: “The Medical Discovery fund
is not a biotech fund but will encompass a broader spectrum of medical
companies. It will look at pharmaceuticals, medical technology, medical
supply, biotechs and healthcare.”
Stoakley says it is vital that medical companies are able to deliver new
products. A company may have developed successful drugs but it needs to
have new products in the pipeline for when patents expire.
For example, Astra Zeneca is expected to generate $6bn in sales this year
but its valuation has been hit by the imminent patent expiry of its
anti-ulcer drug Losec. But Schroder believes its shares could be given an
uplift because it has an improved version of Losec up its sleeve as well as
a stable of new drugs to treat cancer and high cholesterol.
Schroder has added a twist to its offering. The Medical Discovery fund has
linked up with Cancer Research and half of any retained initial charge
together with a percentage of the annual charge will be paid to the
But the fund manager insists this is not a marketing gimmick and says it
was contacted by the charity. “Cancer Research approached us but it is a
very sound investment story in its own right,” says Stoakley.
Despite the recent volatility, analysts are optimistic for the long-term
biotech story, not least because of the breakthrough made by the Human
The project has found a way to identify and classify every form of human
DNA. It should help scientists identify which genes cause cancer and other
diseases which are effectively untreatable at the moment.
Framlington holds top US firms such as Medarex, Alexion Pharmaceuticals
and CV Therapeutics in its fund because they are directly involved in
The Schroder launch may lead to speculation that a flood of similar funds
will be brought to the market by fund managers worried they are missing the
boat. But many are not convinced that the bandwagon will become overloaded.
Walton says: “We launched our fund in April 1987 and have had the game
pretty much to ourselves. I do not see that changing either. It is a very
specialist field and there are not many experts out there who will be able
to manage such funds.”
The view is shared by Dampier, who says: “It is a very specialist area and
someone like Antony Milford who runs the Framlington fund is an expert in