The impact of H1N1 on healthcare equity investment – Interview with Adam Schor, the Client Portfolio Manager of Janus Capital Group. Below are the highlights of the interview …
Q: What is the impact of H1N1 epidemic on equity markets and their economies?
A: So far, numerous countries have already been affected by the H1N1 epidemic, but we believe that its impact on global equity markets and economies will be limited. In the short term, no drastic change has been witnessed in the markets.
Sector-wise, we think that the impact on the airline and tourism sectors will be more significant, while other sectors will be affected to a smaller extent.
The outbreak of the H1N1 epidemic is often compared to the SARS epidemic in 2003. However, the present situation is far better than that in 2003. Compared with SARS, we now can confirm what the H1N1 virus is; its routes of transmission, and more importantly, we have vaccines against H1N1. We believe that the situation will fare much better than that of SARS.
In Janus’s investment team, we have analysts with medical doctorate degrees who are familiar with the sector dynamics and can therefore adjust the portfolio in response to market conditions in a timely manner.
Q: Emerging markets are regions with greater economic growth momentum in the future. Besides, India is a major generic drug manufacturer. Will Janus Global Life Sciences Fund increase its exposure to emerging markets in the future?
A: As at the end of March 2009, the positioning of Janus Global Life Sciences Fund still focused primarily on developed countries. For example, the US accounted for 73.33% of the portfolio and Switzerland accounted for 8.09%. With regard to portfolio strategy, we focus on three major sectors, namely pharmaceuticals, healthcare and life sciences. Regarding sector positioning, we remain focused on companies that are addressing unmet medical needs such as cancer and AIDS where there are few or no alternative treatment options. We also like companies that can help control growing healthcare costs. For example, generic companies, or pharmacy benefit managers may earn higher profits when low cost generic drugs are used.
No doubt the population and economic growth in emerging markets is not in proportion to the growth in per-capita consumption and healthcare expenditure. In view of its growth potential in the future, we are looking closely and may increase our exposure in emerging markets. For example, we pay close attention to the development and opportunities in India because its pharmaceutical industry has numerous drugs with FDA certification of the USA. Benefiting from their low cost advantage, enterprises in India could provide the market with reasonably priced drugs.
Q: Is it worthwhile to invest in healthcare equities? How do they compare with technology funds?
A: Healthcare equities tend to have a lower correlation to economic changes and can be regarded as defensive investments. Depending on suitability, investors could consider the allocation of 5~10% of equity assets to sector funds.
Q: Obama has committed to reducing healthcare costs, which are expected to decrease 1.5% every year over the next 10 years. Will that have an impact on the healthcare sector?
A: Certain sectors would have a larger portion of cost cutting than others. For example, the impact on pharmaceutical revenues may be just a few percentage points over time. We also think the proposals could take one or two years to move through the legislative process and may come out significantly different than what we see as a potential plan today.
Q: News of numerous large M&A has been spreading recently. Do you think this will be the future trend?
A: News of large M&A has been spreading recently, such as the acquisition of Schering-Plough by Merck and the purchase of Wyeth by Pfizer. It is expected that pharmaceutical companies will continue to identify M&A opportunities in an attempt to improve growth opportunities in light of expiring patents and limited opportunities in terms of drugs under development.
(This example is not intended to be a recommendation to buy or sell a security, or an indication of the holdings of any portfolio or an indication of performance for the subject company.)
Q: Can you describe the investment attractiveness and features of the Janus Global Life Sciences Fund?
A: Firstly, our investment team has in aggregate more than 60 years of experience in analyzing the sector and is therefore very experienced in the field. This is what Janus Global Life Sciences Fund takes most pride in. With regard to the research of individual companies and sectors, the Fund adopts “bottom-up” research to understand company and sector dynamics. Besides, the Fund adheres to a “disciplined” long-term investment principle, and fully measures and balances the potential returns and risk between all the sectors, instead of chasing short-term performance.
Source: ETFWorld.com – Janus Capital International Limited
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