FCP OP MEDICAL BioHealth-Trends - medical.lu

FCP OP MEDICAL BioHealth-Trends / Annual Report as of December 31, 2010
Fundsreport
FCP OP MEDICAL BioHealth-Trends is a healthcare fund
for global investment that focuses on mid and small caps. Its
objective is to outperform the indices over the long term by
systematically concentrating on future high-growth markets
in the healthcare industry. Given that product innovations in
the pharmaceuticals industry and medical technology are
among the most important growth drivers in the healthcare
sector, the Fund primarily invests in young companies with
business models built on innovation. The Fund especially
targets companies with products that are soon to be released,
new on the market or starting to be profitable. The Fund
contains only a small proportion of companies with products
in the relatively early stages of development.
The investment focus is primarily on biotechnology firms
that develop new drugs for illness currently lacking treatment
or adequate treatment. Emerging pharmaceutical companies
specialising in innovative preparations for specialty therapy
areas represent another investment segment. In addition to
the drug sector, the Fund also invests in medical technology,
which offers many innovative product developments to
improve diagnosis and therapy for a variety of disorders.
Since small and mid cap stocks in the healthcare sector often
display increased volatility (e.g. due to dependence on
clinical results), the Fund controls company-specific risk by
broadly spreading its investments over approximately 80
positions.
The Fund's investment style is oriented toward pure stock
picking, without being tied to a benchmark. In this way, the
Fund allows long-term investors to tap into the future
potential of dynamic growth segments in the healthcare
sector.
Founded on 30 October 2000, FCP OP MEDICAL
BioHealth-Trends has now been on the market for more than
ten years. Over this period, the Fund has outperformed both
related healthcare and broader market indices (also see Fig.
2, p.5). In addition, FCP OP MEDICAL BioHealth-Trends
recorded the top performance of +43.24 % in a 10-year
comparison with other biotechnology funds, representing a
lead of 53.8 % over the second place fund (Micropal peer
group comparison of 15 biotechnology funds approved for
distribution in Germany as at 30 December 2010, data in
euros).
Investment strategy during the reporting period
General conditions and sector-specific events
The economic recovery continued in most of the major
industrialised countries in 2010, with support from expansive
monetary and tax measures in the USA in particular. The
global economy therefore offered a favourable environment
for the equity markets, which were only temporarily
impacted by the euro debt crisis in the second quarter. As a
result, the broad market indices recorded increases, such as
the 13 % increase in the S&P 500 and the 11 % increase in
the Dow Jones Industrial (all data in US dollars).
Since healthcare is a defensive sector, it remained
significantly behind the broad market in this environment.
This was also due to a number of sector-specific events, such
as continuing revenue losses due to patent expirations in the
pharmaceutical sector at the same time that research
efficiency is declining, additional costs due to healthcare
reforms, and price pressure from economising measures in
the public budgets of many EU countries. Given these
circumstances, the S&P 500 Healthcare Index HCX only
achieved a gain of +1 %. This was the worst performance of
all 10 sector sub-indices of the S&P 500. The main
contributing factors were the underperformances in the Big
Pharma (-3 %) and medical technology (-4 %) sub-segments.
However, even the large cap biotechnology companies only
achieved an increase of +1.9 % (relative to the S&P 500
Healthcare sub-sectors). Only the highly diversified Nasdaq
Biotechnology Index NBI (comprised of 130 securities)
achieved performance comparable to the broad market,
recording an increase of 15 %. Close to 8 % of this
performance occurred in December, with a major
contribution attributable to Intermune’s 145 % increase in
value due to an EU approval recommendation (all data in US
dollars).
In view of the sector-specific challenges, the largest
companies in the sector, and Big Pharma in particular, find
themselves in a comprehensive process of transformation
(including cost reductions, biotechnology integration and
diversification), of which the success is still impossible to
predict. The resulting scepticism of many investors led in the
end to significant underperformance by the large drug
manufacturers (Amex Pharmaceutical Index DRG in USD:
-1 % in 2010). As a result, the valuations of Big Pharma
companies are at historically low levels, with an average
price-earnings ratio (based on expected earnings for 2011) of
10.2 for US pharmaceutical companies and 11.0 for the EU
(Jeffries, 11 January 2011).
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