‘Healthcare isn’t just about drug giants’

The healthcare sector has proved to be an area of rich returns since the financial crisis. Axa Framlington Health, one of the biggest and best-known funds in the sector, has returned 106pc over the past five years, according to data providers FE Trustnet.

The fund invests globally across the entirety of the healthcare sector, incorporating pharmaceuticals, medical devices, healthcare services, biotech and more. Around 70pc of the fund is invested in stocks listed in America.

As with other growth funds, the main aim is to identify companies where earnings are set to grow. If you can buy them at a reasonable price, better still.

In line with the sector, the fund has struggled since early 2015, falling 6pc over the past year, but three-year returns sit at a healthy 53pc.

The fund has been running since 1987, but manager Dani Saurymper joined from Barclays Capital in April 2015.

Here, he explains how face-to-face meetings and consensus projections form part of his stock picking methodology, and his efforts to diversify within healthcare.

How do you construct the fund?

We look at historical and projected growth, in particular cashflow, as at the end of the day cash is king.

I’m also very keen on returns on invested capital and a strong balance sheet. Different valuation metrics are used, depending on the sub-sector.

When I screen out companies and drill down, I plug in the consensus forecasts to my own model and try to understand if there is a valuation gap between today’s price and the projections.

I then do my own fundamental analysis, to see if the consensus is realistic.

We also look at suppliers, customers and competitors.

Face-to-face interaction is important. I will meet at least 500 companies a year, and typically will not invest unless I’ve met management in person.

Along with the team behind the Biotech fund, I also attend medical conferences to get a wartsand-all view of products from doctors and physicians. That’s aided by the fact we all have a scientific background.

What have been some recent additions?

Generally speaking I am underweight large-cap pharmaceuticals, somewhat overweight biotech, and I have tried to build a more broad portfolio outside those areas. There is often an assumption that investing in healthcare is just biotech and pharma, but there’s a whole ecosystem out there.

We are overweight medical devices and we’re continuing to add exposure to digital health and “big data” in healthcare.

Companies I have been buying include Cerner, an electronic health record company; Dexcom, which provides continuous blood glucose monitoring; and United Health Group, which among other services uses data to predict health trends.

What are the prospects for healthcare profit growth?

Healthcare is generally viewed as a “defensive” sector where growth is determined by long-term factors, such as ageing populations, increasing instances of “lifestyle diseases” and demand from emerging markets.

China and India spend 4pc-5pc of GDP on healthcare compared with 18pc in the United States. As these developing economies grow wealthier the expectation is that health spending will rise.

Despite political and other risks, companies are still engaging in strategic mergers and takeovers.

I also firmly believe that we are on the cusp of another innovation wave. We saw 45 drugs approved last year in the US, a near record high.

Is the exposure of the sector to policy changes a problem?

I am significantly underweight large pharmaceutical firms. We favour sub-sectors that are less exposed to the pressures of US politics.

Do you invest your own money in the fund?

Part of my pension is in the fund.

If you hadn’t become a fund manager, what would you have been?

I thought I was going to end up in a lab curing diseases.

AXA FRAMLINGTON HEALTH

vs MSCI World Health Care index over five years

Axa manager Dani Saurymper tells James Connington why there are still returns to be had in the health sector

How to buy the fund as cheaply as possible

The fund has a total cost (the “OCF” or “TER”) of Be sure to buy the right “share class”, which is “Z”. The investment shop through which you buy the fund will also levy a charge. Some will

0.83pc a year.

charge a percentage of the amount invested, others will apply a flat annual fee. Our colour coded tables at will guide you to the cheapest fund shop for your circumstances.

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