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Biotech and pharma: a remedy for turbulent times?

Hand holding test tube over stock data on computer monitor.

It these uncertain and volatile economic times it is worth re-looking at how the pharmaceuticals, healthcare and bioscience sectors weathered the global financial crisis and how the sector has performed against a global equity average in the subsequent decade.

Over the last eight years, the 10 pharmaceuticals, healthcare and bioscience-focused funds that make up FE Analytics’ pharma health and biotech equity category (see table below) significantly outperformed the MSCI World index.

These 10 pharma, healthcare and bioscience funds returned on average 176% between 1 January 2010 and 1 January 2018 – during the same period the MSCI World index returned 76%, according to FE Analytics.

Ten-year performance of pharma, health and bioscience funds

Returns in US dollars

The biotech sector, in particular, is viewed as a risky bet by some investors because a large number of early-stage drugs do not move beyond the trial stage. But healthcare and pharma generally offer significant grounds for optimism at the current time. In 2017, the US Food and Drug Administration (FDA) approved more than 1,000 new generic drugs – a 25% rise on the previous year. Moreover, last year the FDA approved 46 brand new drugs, a two-decade high.

As analysts fret over whether the global economy is heading for another slowdown it may be worth keeping a close eye on the pharmaceuticals, healthcare and bioscience sector in the coming years.

In the event of another global meltdown its worth remembering that funds focused the pharmaceuticals, healthcare and bioscience sectors suffered least, on average, compared to all equity sectors during the two-year period from the beginning of 2008 to the end of 2009 posting an average loss of about 9.3% compared to 21.9% for the MSCI World index.

2008-2009 performance of pharma, health and bioscience funds

Returns in US dollars