The biggest performance winners so far this year have been the health and biotechnology funds as genes-- rather then chips --are where the action has been.
If you'd been both lucky and smart enough to invest in the Dresdner RCM Biotechnology fund on the last day of last year, your investment would be up over 90 percent, as of Feb. 24, according to Lipper Inc.
Had you picked Franklin's Strategic Biotech fund, you'd be up almost 73 percent. Munder's Healthcare, Janus' Global Health Sciences and Monument's Medical Sciences funds have also all have year-to-date total returns of more than 55 percent. Not too shabby for funds with track records of less than three years.
But not all investors like purchasing shares of funds that haven't been around for at least 5 or 10 years. And when you look at the 70 funds that made-up the Lipper's Health/Biotechnology fund's category at the end of 1999, only eight had 10-year track records; 19, five-year ones.
Eaton Vance's Worldwide Health Sciences Fund, (1-800-225-6265),has been around since 1985. Its year-to-date performance is ahead nearly 36 percent, well in front of the 26 percent total return average for the category. Even last year, when the median performance on this grouping of funds was 8.25 percent, this fund was up 23.92 percent.
While some might proclaim that geomics is where it's at and that the health/biotech world has a definite place within The New Economy, to Sam Isaly, portfolio manager of the Eaton Vance Worldwide Health Sciences Fund, that's old news. Isaly has been active in international and health care investing for the past 30 years. He's been the portfolio manager on this fund since 1989 and has seen its performance compound at an average of close to 20 percent per year over the past decade.
'I tease my kids that my objective is 20/20," says Isaly explaining that his goal is for the fund to have an average annual return of 20 percent over 20 years. And he's on the way there; the fund's average annual return for the past 10 years is well over 19 percent.
In a field that's as exciting as it can be volatile, one of the advantages of Isaly's fund is that he can look for investment opportunities anywhere in the world. Currently the fund invests about 70 percent of its assets in U.S companies and 30 percent abroad. Had you investigated it in the mid-1990s, those percentages would have been reversed.
At press time there were about 35 holdings in the fund's portfolio including names like Warner-Lambert, Roche, and Monsanto. But Isaly may also invest in private equity. (Private equity, as the two words imply, refer to companies not traded in the public markets.). With about 4 percent of assets invested there, the portfolio also contains names not so familiar like Tularik, a drug company.
A plus for holding private equity is that if the company goes public and its initial public offering, (IPO), is hot, the stock can pop and make a big difference in a fund's overall performance. Abgenix is one such company. It's a drug company that Isaly invested in when it was a private equity offering and selling under $10 per share. The company eventually went public and in mid-January of this year, was trading around $130 per share.
But those are the sexy stories. Look at the big health and biotech picture and you'll see why the field is not only interesting but soaring. Three key points include:
- Spending. According to Eaton Vance, health care spending in the U.S is projected to reach $2.1 trillion dollars in the year 2007---nearly tripling the $756 billion spent in 1991.
- Discovery.The discovery of the structure of DNA and the cracking of the genetic code have opened new research frontiers that are transforming the health sciences field.
- Aging. During the 1998-2025 period, the world's elderly population (age 65 and above) will more than double, while the world's youth, ( under age 15) will grow by 6 percent, and the number of children under age 5 will increase by less than 5 percent.
As promising as the health and biotech arena sounds, as always, there are risks involved. One of which is fund performance volatility. Look back over Lipper's Health/Biotechnology Funds universe and you'll see that the performance ride has been a bumpy one. In the 12 quarters beginning 3/97 and ending 12/99, for instance, half of the time performance on the average fund of this type was underwater. So consider investing in health/biotech funds similar to taking prescriptions drugs---- they all come with side effects.
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