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No cloning around

Many IFAs are steering clear of biotechnology funds, saying they are too risky for the average client. Recent biotech developments have seen the sector pushed into the spotlight but IFAs are warning that these funds are not for everyone and it is essential for clients to be fully informed.

Chase de Vere investment marketing manager Ian Millward says: “We are recommending biotech funds but only rarely. It would not be a standard recommendation, only for someone who wants something aggressive.

“The sector has potential but is a narrow market and we would want to ensure the client knew the situation. It is important not just to invest in something that has become the latest fashion but we would use them with caution.”

Fund managers say the market is extremely volatile and investment is highly speculative. The sector is seen as an area for long-term investment.

Hargreaves Lansdown chief executive Peter Hargreaves suggests biotech funds are not something to recommend as a mainline investment.

He says: “Biotechnology is something that you buy as an adjunct to a portfolio. It is the spice round the side of a fairly full portfolio. If a client wants something exciting then these are the funds we would explore. But biotechnology is an area that is very specific and is only for the man who has everything.”

Much of the recent boom in this area is down to the completion of the sequencing and mapping of the human genome, allowing life science companies the opportunity to produce new types of medicine at a unprecedented rate.

Rothschild Asset Management head of bio science unit Edward Wawrzynczak says: “The dev-elopment of new medicines is a long process but we have seen the arrival of lots of new viable biotechnology companies, proving this is an industry that is not going to disappear overnight.

“We are confident the industry is going to be a driving force over the next 10 years. It is now recognised this is an important sector. It has been possible for fund managers to ignore it but they cannot afford to do that now.”

This year has seen the launch of several funds with a biotech focus. People are seeing the benefit of manufacturing new drugs and money is increasingly coming into this area. Fund managers see the potential of this activity as a significant investment opportunity.

Gartmore techtornado fund manager Tim Dainton says: “The completion of the genome sequence has brought euphoria on stockmarkets. Some of these companies still may come to nothing but there is an appetite for the next deal to come along and the market is showing immense opportunity.”

The sector&#39s volatility has led to fund managers investing in the area with a lot of caution. Many of the funds are underweight in biotech.

But the recent uplift in the market is pushing managers to start putting more emphasis on this area. Framlington marketing manager Lesley Hankin says the biotech part of its health fund has been built up since the end of last year from 40 per cent to 55 per cent in February.

She says: “We have recently cut back as some of the biotechnology companies are looking overvalued but I do not think the sector as a whole is overvalued. There is a lot of activity there and demand is picking up. We have not cut back completely as we still have 50 per cent in there.”


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