StemCell Therapy

Low cost of capital has fueled exceptional returns for biotech and health stocks but will near zero cost financing last?

Biotechnology & Healthcare was the top performing investment company sector of the last decade producing a return of 491% from 2010 to 2019, compared to a return of 198% for the average investment company over the same period, according to the Association of Investment Trusts (AIC).

The UK Smaller Companies and Global Smaller Companies sectors were the second and third best performing sectors of the decade and delivered 379% and 330% respectively. European Smaller Companies (10th) also featured in the top ten.

Meanwhile the best performing investment companies over the past decade came from a variety of sectors, but companies in the UK Smaller Companies sector featured most strongly, making four appearances within the top ten.

Volta Finance was the best performing member company over the decade. The company from the Debt Structured Finance sector produced an impressive 959% share price total return from 1 January 2010 to 31 December 2019. It was followed by Lindsell Train in the Global sector, up 730%, and Baillie Gifford Shin Nippon from the Japanese Smaller Companies sector, up 678% over the same period.

Annabel Brodie-Smith, communications director of the AIC said: Its encouraging to see a diverse spectrum of investment company sectors perform so strongly over the last decade. While Biotechnology & Healthcare was the top performing sector by some margin, two UK equity sectors made it into the top ten despite the Brexit referendum and subsequent lack of clarity surrounding the UKs exit.

The closed-ended investment company structure lends itself particularly well to illiquid alternative investments and over the past decade the Private Equity and Infrastructure sectors have both delivered particularly strong returns. Three smaller company sectors feature in the top ten best performers, demonstrating that investment companies are the best vehicle for holding smaller companies which can be hard to sell in times of stress. In addition, investors who have favoured investment companies to gain overseas exposure via the Japan, Global and North America sectors have been handsomely rewarded.

Its always interesting to look back at the best performing companies, but its important to remember that past performance is not an indicator of future returns. Investment companies cover a broad variety of sectors, risk profiles and geographical exposure to match a range of investor needs. When investing you should consider your objectives and the level of risk you are willing to take and, if you have any concerns, you should speak to a financial adviser.

Jason Hollands, managing director, business development and communications at Tilney Investment Management Services said: The last decade has seen huge advances in medical discovery. When combined with an extraordinarily supportive, post global crisis environment for risk assets i.e. low cost of capital thats fueled exceptional returns for biotech and health stocks.

While there is no reason to doubt further advancements in medical science, we wont remain locked in a world of near zero real financing costs forever. Of particular relevance is mounting pressure across the global for greater controls over drug pricing, given the spiraling costs to health services. This could be particularly relevant if the Democrats win the US Presidential election as their nominees have been vocal on this as well as calling for a much more interventionist role for the state in the massive US healthcare market.

With regards to the overall observations below. The broad theme is that smaller companies across a variety of markets have been amongst the best performing parts of the market. Ironically this has taken place over a period during which investors have increasingly shunned them in the clamour for passive products that are overwhelming skewed to large-cap companies. Frankly, the more smaller companies are ignored, the greater the potential available for active managers to add value in this space by spotting winners that the wider market has yet to discover.

Further reading: Investment Trusts: A beginners guide

Read more:
Biotechnology and Healthcare is the best performing IT fund sector - What Investment

This entry was posted on January 18, 2020 at 8:46 pm and is filed under Biotechnology. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |