The challenge is that the price of many biotech names is towards the top end therefore one of the questions is whether this run can continue.
This fund is unlikely to appeal to all investors. It has the potential to deliver very strong returns but equally it can do the reverse. This means it is volatile and investing at the wrong time can deliver negative returns.
So if I am appearing negative why would anyone invest in the sector? There are certain sectors which have the potential to be drivers of the global economy going forward. This includes agriculture and biotech. There will be periods when these sectors are out of favour but over the long term they have the potential to deliver.
The first thing is that investors need to believe that this statement is correct and secondly if it is then the next question is why biotech? On a simplistic level, similar to Agriculture there is a demand. Demographics is the biggest demand. We are living longer and more importantly living longer in retirement, so this brings added demand for new innovative drugs. Obesity is a big problem (a third of the US population is obese and in the UK 10% of children are obese – Goldman Sachs Research, OECD 2012) and this brings with it diabetes, heart and liver disease etc and then the developing world is demanding a more westernised health care system.
If an investor believes that there is a greater demand for innovative drugs which responds to changing demographics then it makes sense to invest in those companies that are at the cutting edge of that technology. This in a nutshell is what this fund does. However investors need to understand this is a high risk fund, and will be volatile. For this reasons the concept may appeal but the risk less so! In this update we look to outline the style of management in more detail.