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The
biotech sector
Innovation
and high risk go hand-in-hand
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The biotechnology
industry is one of the most innovative sectors that you can
invest in. Pharmaceutical companies are constantly searching
for new drugs and treatments that will offer new advancements
to medical needs. Yet the speculative nature of the industry
means that it is certainly in the high-risk part of an investor’s
portfolio. However, biotech companies performed well last
year and Gerd Philippaert, manager of the Fortis L Fund Equity
Biotech, is aiming for similar gains in 2004.
The fund
is described as being a ‘pure play’ on the biotechnology
sector, meaning that it only invests in biotech companies,
in an attempt to avoid any nasty surprises that investing
in non-sector holdings may bring. The investment team concentrates
on smaller to medium-sized companies to make up the fund’s
holdings, as these are seen to focus on innovative technology
products which offer higher potential returns.
This
outlook seems to have paid off so far for the fund, as it
has produced a return of 6.35 per cent a year since inception
in 1998, and produced a healthy-looking 13.5 per cent in 2003.
Philippaert
believes that the industry is tied less to the general economic
cycle than others, as it is more determined by company-specific
issues than other sectors. This, he says, offers it good defensive
growth prospects. The market is also affected by newsflow
on products and on collaborations between companies. It is
a high-risk investment theme, and Fortis recommends that in
a well diversified, aggresive portfolio investors should only
invest around 5 per cent in the sector.
Particular
companies that have performed well for the fund include Elan
and Biogren, which added 252 per cent in the first quarter
through their alliance in producing Antegren, a promising
drug for the treatment of multiple sclerosis.
Although
the sector made strong gains last year and is now seen to
be a bit more expensive, Philippaert is confident of success
in 2004.
Newsflow
on product development has been highly anticipated and investors
are more risk-averse than in 2003. We expect this to be short-lived
and expect before summer a new wave of positive newsflow.
Volatility
remains an issue but still we think that the biotech sector
should outperform the markets.”.
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