Report Release Date: 17 Jun 2010
Analyst: Natalia Wolfstetter
Morningstar Opinion
Despite poor recent performance, investors should hold on to Pictet Biotech.
This fund, which has been successful since its launch in 1995, has struggled over the last 18 months relative to its competitors. A major reason is that Human Genome Sciences and Dendreon, two of the strongest-performing biotechnology stocks, were not represented in the fund. The underperformance also illustrates the high stock-specific risks of a focused portfolio comprising 30-40 securities. Moreover, biotechnology often comes down to all-or-nothing decisions, and individual stocks can diverge very widely in their development. Should the approval of a drug be denied or research not bear any fruit, a company's existence can be threatened, especially when there are only a few products in the pipeline. The opposite was true for the two companies mentioned above, and fund management had underestimated their probability of success.
However, fund manager Michael Sjöström and his team have proved for many years that they know how to deal with the risks in this sector. The fund's balance remains intact over the long term, even though the fund's lead versus the benchmark and category has shrunk. Sjöström has been responsible for the fund since its launch. He is also one of the founders and owners of Sectoral Asset Management (SAM)--an investment firm that specialises in the health sector--which makes investment decisions on behalf of Pictet. Therein lies the strength of the fund: Its manager has access to an eight-person team of analysts with medical know-how as well as a research consulting network. Although the fund lost one of its most experienced team members--comanager Carmen Tang--the research capacities are still very extensive. In addition, the team was enhanced with two analysts for Asian health-care stocks and medical technology.
The strategic focus is on biotech companies that are about to introduce, or in the early phases of marketing, a new drug. Often, these are companies launching their first product. The portfolio leans toward mid- and small caps, though the latter is limited by fund size. For established industry players such as Amgen, the team pays attention to developments in the product pipeline that can trigger new growth. In addition, the team looks for solid fundamentals as well as good management that is in a position to lead a product through the complex development and approval process. Overall, it's a well-thought-out investment process, which we are not questioning despite the latest performance problems.
A biotech investment, for the above-mentioned reasons, is certainly not for everyone. Nonetheless, those who choose to invest here are in good hands. The fund manager, who has comprehensive sector knowledge and whose track record spans many years, has been in place since the fund's launch--not many sector funds can claim that. We trust that investments in the fund will pay off in the future; thus, we confirm our Superior qualitative rating.
*The above returns are in EUR terms.
To learn more about the fund, please click here.
To read the summary report, please click here.
