Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: David Pinniger, fund manager, International Biotechnology Trust (LSE: IBT).
Investors have sore heads. For a decade, easy credit and rising asset prices meant the path to riches was pretty straightforward. It was a great party while it lasted. But three years on from the global financial crisis, the effects of the hair of the dog' quantitative easing, which reinflated asset prices, appear to be wearing off. The hangover from the decade-long party is back with a vengeance. Clearing up the mess is likely to involve an extended period of deleveraging (repaying debt), higher taxation and lower investment. That combination looks set to suppress real economic growth in developed countries for some time.
Creating wealth via the prudent deployment of capital to generate and capture real growth in the value of assets is starting to look quite difficult (as it should be). Everyone is going to have to work harder. The value of innovation rises in such conditions. Innovation involves the creation of something valuable out of nothing. It is now the key route to wealth creation in a harsh economic environment and it's the defining characteristic of the biotechnology industry. As you read this, scientists and entrepreneurs are successfully developing new drugs, devices and technologies.
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Delivering higher-quality healthcare to more people at lower cost is now a challenge for developed economies with ageing populations and developing economies with rapidly growing middle classes. Modern lifestyles and extended lifespans are driving epidemics of diseases such as diabetes, obesity and cancer, which represent a huge socio-economic burden. Investments in the global healthcare industry should be a significant part of any investor's portfolio.
Earlier-stage, research-intensive companies developing new technologies are where the highest returns are to be found, but at higher risk, which is why I would recommend an investor holds a diversified, actively managed portfolio run by a specialist healthcare investment manager. However, there are a few companies that investors can buy directly that carry an acceptable ratio of risk to reward when held as part of a broader portfolio. I would use any market weakness in these stocks as a buying opportunity to invest for the long term.
Shire (LSE: SHP) has transformed itself in recent years into one of the highest-growth speciality medicine groups in the industry. Its strategic move into rare, life-threatening genetic disorders is paying off. These drugs command high prices and generate high profit margins. It may not be cheap on a price/earnings (p/e) ratio of 19, but this reflects strong growth prospects.
Advanced Medical Solutions (LSE: AMS) has developed and commercialised a surgical glue called LiquiBand that replaces the need for stitches and sutures to close skin cuts caused by accidents or surgery. LiquiBand is doing well in Britain and Europe, and we expect it to conquer America over the coming years.
Abcam (LSE: ABC) is a medical research tools company. Known as the Amazon for antibodies', it sells online a range of biological molecules fundamental to early-stage medical research. After several years of phenomenal growth the share price and p/e ratio have eased recently. But with a newly diversified product portfolio and a push into Asia, strong growth should continue.
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