The Covid19 pandemic has led many investors to consider backing biotechnology and healthcare companies that are focusing all their efforts on finding vaccines for the coronavirus.
The healthcare industry, in general, has been growing significantly over the years. One key factor driving this growth is demographic trends of ageing populations in many parts of the world. As people grow older, they’re more likely to need healthcare products and care services.
Stocks and shares
Progress continues to be made in developing medicines and medical devices using advanced technology. While it’s a crucial sector that is making headway today and for the future, healthcare is also a highly specialised area of investing and not for the faint-hearted investor.
If you are interested in adding healthcare stocks to your portfolio at this time there are a number of companies in the spotlight at the moment. For example, soaps and detergents manufacturer Unilever and Dettol maker Reckitt Benckiser (but not for injection or ingestion).
Stock picking is not for everyone, of course. If you would prefer to let a professional choose the individual companies to back for you, there are a number of specialist funds to choose from. Healthcare funds and investment trusts back companies around the world which are somehow related to healthcare. Most are those that use biotechnology to create drugs or treatments.
The top 20 best performing investment companies in the equity sectors over a year include five healthcare trusts, according to analysis by the AIC. The Biotech Growth Trust comes top having returned 47.81% over the 12 months. It’s well diversified across pharmaceutical companies, biotech and medical devices. Its top holding is Vertex Pharmaceuticals which discovered the first medicines to treat the underlying causes of cystic fibrosis.
The World Wide Healthcare Trust returned 33.68% over a year. It mainly invests in American firms – though its largest holding is Japanese multinational Takeda – the largest drugs company in Asia.
The remaining three are Polar Capital Global Healthcare returning 16.53%, International Biotechnology at 14.06% and BB Healthcare, which returned 11.92%. The largest holding is US firm Teladoc, which offers an online GP service via mobile devices – an appealing feature at a time when many households are on lockdown.
There are also a number of investment funds to choose from. Often, fund managers will put a portion of your money into better-known companies, such as AstraZeneca and GlaxoSmithKline. One example is Polar Capital Healthcare Opportunities which holds both British pharmaceutical giants, though its biggest holding is Roche, a Swiss healthcare firm. The fund returned 11% in the last year.
Axa Framlington Biotech also backs biotechnology firms and the medical research industry. It holds American medicine giants Amgen and Biogen and has returned 22.45% over one year. The passive market has some offerings in this space too. The XTrackers MSCI Health Care ETF tracks the world’s 145 largest healthcare companies with annual fees of just 0.3%.
There should always be strong demand for healthcare products and research, regardless of the state of the economy. But while there are some serious success stories, it’s important to remember that the costs of developing new therapies are significant and many never come to market – and go bust.
There are other pitfalls, such as the length of time it takes to gain regulatory approval for drugs and the tightening of government spending budgets. Regardless, there are opportunities out there with great potential for returns. Experts insist that a specialised sector, such as healthcare, should be a small part of an already diversified portfolio.
Image from CDC.