Over the past three years, pharma and biotech mutual funds have rotted on the sidelines, says The Sunday Telegraph. For example, out of 898 funds, Threadneedle’s Global Health Fund, “the pick of the bunch”, ranks at just 825.
Investors appear to have lost their appetite for the high-risk biotech sector. “Biotechnology stocks that have debuted this year are off an average 13%,” Stephen Burrill of San Francisco-based Burrill & Company told Medical News. Meanwhile, US pharma giants have been plagued with product withdrawals and patent expiries, which has damaged investor sentiment despite decent profitability compared with other sectors.
But now fund managers from outside the sector are casting their gaze over drug stocks, driven by fears of a deteriorating economic climate. Pharma stocks are traditionally seen as defensive buys, less exposed to the business cycle than other sectors. What’s more, “valuations of healthcare stocks are at their lowest for a decade”, says Deane Donnigan of Axa Framlington in The Sunday Telegraph.
That’s good news for investors – especially when you consider that the West’s ageing population is set to boost demand for treatments from hip replacements to diabetes pills. As Patrick Evershed of New Star Select Opportunities tells The Times, while “these companies may be in high-risk sectors… I believe that there will be a market for their products whatever the state of the economy.” If you’re willing to take a punt, independent financial advisers tell The Sunday Telegraph that they are keen on Axa Framlington Health, Finsbury Emerging Biotechnology Trust and the Finsbury Worldwide Pharmaceutical Trust.
The best investment trusts for rising incomes
Dividends from investment trusts have grown by an average 6% a year over the past five years, says The Times – good news for investors looking for rising income now or in the future. This is due to their ability to “retain up to 15% of their investment income in a revenue or income reserve, allowing them to offer dividend stability,” Annabel Brodie-Smith of the Association of Investment Trust Companies (AITC) tells The Daily Telegraph.
But although the AITC says trusts pay an average dividend yield of 2%, others pay none at all, while some pay more than 5% a year. Take a look at the box above to see the best-performing income funds over the past ten years.