Healthcare to resist global growth downturn

Sep 10, 2015

Concerns over the faltering Chinese economy and the effectiveness of quantitative easing have led investors to become increasingly fearful of a slowdown in global growth.

Over the past month global markets have witnessed broad-based declines, with the MSCI World, FTSE 100 (UKX) and S&P 500 indices all down around 8% over the period.

Healthcare and biotechnology stocks have followed the same trend, with the MSCI World Health Care and NASDAQ Biotechnology indices also down by around 8% over the month to 9 September.

However, according to investment trust analysts at Stifel, in the future the healthcare sector should be "somewhat protected" from any declines in global growth, with the recent market pullback creating a buying opportunity in the sector.

Rated Fund success

In particular, the broker highlights Money Observer Rated Fund Worldwide Healthcare Trust (WWH), which is managed by US based healthcare experts Orbimed, and which Stifel has reiterated its 'positive' rating on.

The trust has recently suffered from its exposure to large healthcare and pharmaceutical companies, which were sold off along with the rest of the global market in August. Its exposure to Chinese companies have also dragged on its performance, and its net asset value (NAV) has declined by 11% since mid-July.

This has helped to push out Worldwide Healthcare's share price discount to NAV to 5.4%, which is below its 12-month average of 4.1%. This, combined with "strong fundamentals" within the healthcare and biotechnology sectors, has led Stifel to highlight the trust to new investors.

"The recent market pullback has created a buying opportunity for Worldwide Healthcare Trust, in our view. It provides a diversified approach to the healthcare market with significant exposure to biotechnology companies.

"Sector valuations remain reasonable and upcoming industry and broker conferences could be the catalyst to re-focus investor minds back on the fundamentals," says Ian Scouller, head of research at Stifel.

The broker adds that while the trust's 3.6% exposure to Chinese 'A' share healthcare companies has proved a significant drag in recent months, over the long term OrbiMed (which also manages the highly successful Biotech Growth Trust (BIOG)) believes that Chinese healthcare will be "an important structural growth story".

Stifel adds that the trust's overweight to biotechnology stocks, which account for 32% of the portfolio, should also bode well over the longer term. This is despite the sharp gains seen in the sector over the past three years that have led some to predict an imminent decline.

"The manager reiterates the bull case that research and development productivity is at record levels and valuations remain reasonable. Furthermore, should the market fall too far, the cash rich pharma companies are likely to act as a backstop, acquiring any promising biotech firms," says Scouller.

Over the past year to 9 September the Worldwide Healthcare Trust has returned 27% in share price gains, while over three years it has returned 126%. However, with an ongoing charges figure of 2.2%, Scouller concedes that investors are asked to pay for this performance.

Source: Interactive Investor