Sectoral Asset Management
In the global investing market, the healthcare industry is acknowledged as an integral part of a balanced portfolio. Increasingly, it is being regarded as a prudent stand-alone investment and a good performer in good times and bad. The numbers bear this out; over the past 24 years (as long as the S&P 500 sector index has existed), the healthcare has been the best performing sector.
Sectoral Asset Management is a global leader in healthcare investment portfolios. Established in 2000 in Montreal, Sectoral manages $3.5 billion in assets with a focused and diligent approach to research and analysis.
Sectoral Asset Management offers individual portfolios for institutions and High Net Worth individuals. The company’s composite portfolios are divided into six categories being, Biotech Composite, Healthcare Composite, Generics Composite, Generic and Genome Composite, Emerging Markets Healthcare Composite, and Small Cap Healthcare Composite. Sectoral’s Biotech Composite is the longest running at 20 years, and has a generated annual return of over 15 per cent per annum over that time.
Sectoral employs an investment philosophy which recognizes the complexity, heterogeneity and rapid pace of development, of the healthcare sector. Sectoral believes that specific risk is the most important risk component, and its investment process has been developed and refined to mitigate this risk. “The complexity also gives rise to a need for in depth analysis and a lot of primary research,” says Stephan Patten, CFA Managing Director and Deputy Chief Investment Officer, and Senior Portfolio Manager for Sectoral’s healthcare strategy. Sectoral dedicates resources an extensive due diligence, which includes visiting the companies, and talking to executives and senior scientists to understand the details of how they will bring this drug or device to the market because the details are very important, as well as a consulting with its scientific advisory network, a group of experts from around the world.
“All of that in-depth analysis and primary research goes into essentially answering one question,” says Patten. “Do we think that that drug or device will make it to the market and be successful? The healthcare sector is internationalizing, and so a global approach for investing is important. We build our portfolio bottom up, finding the best ideas in each of sectors. Our portfolios are typically concentrated between 25-40 names and we try to build them with the best ideas that we find within the healthcare universe in each of the industry.”
Sectoral portfolios are price sensitive. The source of alpha the company has generated comes from its focus and the in-depth research undertaken by the investment team.
The healthcare sector draws a diverse investor base. Sectoral’s provides sub-advisory service to mutual fund companies who avail themselves to Sectoral’s expertise in management of healthcare portfolios. Sectoral has one of the world’s longest track records in managing biotech equities and is a sub-advisor of numerous healthcare and biotech funds offered by partners in Europe, USA, Canada, Japan, Taiwan and Korea.
Additionally, Sectoral manages portfolios for asset owners who interested in healthcare assets… Healthcare investment is a very attractive option for both sets of investors. The diversity of the industry provides a range of risk return characteristics. For example, investment into a big pharmaceutical company, with a diversified portfolio for stable cash flows, is a defensive investment. For investors focused on asset growth, and may look to the biotechnology field, which offers a growth tilt to a portfolio.
“One of the things that people tend to look at healthcare because it brings a s a defensive aspect to their portfolio,” says Jerome Pfund, CFA Co-Founder, Chairman, and Chief Executive Officer. Pfund explains that Sectoral is pleased to announce the first closing of its second private equity fund, and that Sectoral is in the process of launching a new mutual fund in Luxemburg on the strength of their emerging healthcare market strategy.
“In many emerging countries, the private sector is becoming the preferred choice for patients who can afford to use it,” says Vasilios Tsimiklis, Healthcare Economist.
“Total health expenditure in most emerging countries, expressed as a percentage of GDP lags that of more developed peers. Given the relatively robust economic growth, increased government funding, and emergence of a more affluent middle class seeking quality care in the private sector, per capita spending on healthcare is on the rise but it is still much lower in the emerging markets than in more developed ones.
“Given the risks, but also the significant growth potential of the emerging-market private-hospital groups, we believe a basket approach with geographic diversification is the best course for investing.”