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Why invest in global health care and biotechnology?

Monday, January 15th 2001, 8:58PM

Why invest in global health care and biotechnology?

We live in a world in which trends and forces create a constant stream of opportunity and change. Technological advances make the evening news almost daily. At the same time the world’s populations are regrouping and forming a distinct trend towards ageing populations in industrialised countries, and increasingly youthful populations in developing countries. Together, factors such as technology and world demographics have created unprecedented demand for the world’s health care and biotechnology industries.

How has this situation come about, and what does it mean for investors?

Global demographics – driving the demand

In the US and many other industrialised countries, the over-65 population is the fastest growing group. In Australia, our over-65 population accounted for just 9% of the total in 1976. By 2041 the over 65s will represent one quarter of the nation’s population (Australian Bureau of Statistics). Conversely, in many developing countries, the young represent the fastest growing population group. Importantly for investors, these changing global demographics will drive demand for health care for years to come, as these two groups – the young and the old – represent the largest consumers of health care products and services.

Health care and biotechnology – supplying the demand

Unrelenting technological innovation is a persistent and powerful growth driver for pharmaceutical, biotechnology and medical device companies. Advances in medical sciences will allow us to live longer and healthier lives. The recent decoding of the human genome will open the door to a new era of modern medicine. Drugs will be developed in greater number and will have greater effectiveness. Major new drugs will be developed for the treatment of arthritis, diabetes, hypertension and asthma. Angiogenesis – the growth of blood vessels – will offer new treatments for cancer and cardiovascular disease.

A breakthrough in antiviral drugs will bring effective treatment of the common cold and flu. Less invasive surgical procedures, using techniques such as three dimensional imaging and robotics, will lower patient risk and shorten recovery times. Lab-grown tissues will be used to repair torn knee cartilage and replace organs such as bladders and kidneys.

Investing in global health care and biotechnology – looking beyond Australia’s limits

These advances within the global health care industry will create enticing investment opportunities. Within this dynamic environment, major new companies will emerge to join the current giants of the industry, including Smithkline Beecham, Pfizer, Pharmacia and American Home Products.

As most investors are aware, change can bring with it a corresponding level of volatility. Thorough research is generally required to navigate this volatility with minimal risk. Moreover, for Australian and New Zealand investors, local markets offer very little access to these industries, and so a global investment approach is usually required in order to tap into these growth areas of the world’s economy. As a result, investing in health care and biotechnology is often best achieved via a professionally managed unit trust. A well-researched portfolio of global health care companies managed by a professional fund manager can help to minimise the risks associated with investing in such a dynamic, global industry, and has the potential to achieve outstanding long-term returns for investors.

At J B Were & Son Investment Management, we strive to provide investors with quality, value-adding investment opportunities. In order to bring the best in international funds management expertise to the J B Were Global Health & Biotech Fund, we have delegated the investment management of the Fund’s international assets to Wellington Management Company, LLP – one of the oldest and largest investment management companies in the US. As at 30 September 2000, the firm managed more than $425 billion of funds for clients around the globe, including $34 billion in health care and biotechnology portfolios.

Fund objective

In managing the J B Were Global Health & Biotech Fund, we aim to achieve long-term capital growth by investing in health care, biotechnology and related companies globally.

 How will the Fund be invested?

Top 10 portfolio holdings

(as at 31 October 2000) % of portfolio

1 Pharmacia Corp 6.5%

2 American Home Products 5.7%

3 AstraZeneca Plc Adr 5.5%

4 Aventis Sa Adr 5.1%

5 Abbott Laboratories 4.7%

6 Schering Plough Corp 4.6%

7 Lilly Eli 4.4%

8 Smithkline Beecham Adr 3.7%

9 Baxter International 2.9%

10 Biochem Pharmaceuticals Inc 2.2%

Representative performance data*

(as at 31 October 2000)

1 year

3 years

%pa

5 years

% pa

J B Were Global

Health & Biotech Fund

87.1

44.4

39.2

Goldman Sachs

Health Care Index (A$)

67.6

42.5

N/A

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