Tech/Healthcare index funds

Kendall80

Considering human progress in these areas is very unlikely to reverse, is an index tracking fund a pretty good investment?

I'm currently contemplating investing in the L&G global tech and global healthcare/Pharma funds. Lump sum at first and then via monthly investing method. This is in addition to my region specific low cost trackers (vanguard and fidelity).

I'm interested in hearing others opinions on this matter.

Ryan_Futuristics

Healthcare's considered a good defensive strategy for the long-term, as even if general productivity drops with ageing populations, the demand for healthcare's unlikely to

This is why Glaxo and AstraZeneca feature highly in managed funds

My feeling is, whether you're invested in trackers or managed funds, you've already got a lot of exposure to these sectors (I'd consider Woodford's or Mark Barnett's allocations to healthcare and technology very informed and managed decisions)

For me, the only reason to seek additional exposure would be if you knew the sectors, and felt them to be undervalued

Personally I think the value of both sectors is well priced in - these are popular investments that have enjoyed very good runs

Price/book ratios on both are in the 3.5s for both funds ... I don't think they'll do terribly, but it's generally a recipe for mediocre/slightly-disappointing performance

System

Pharma, especially biotech has had a very good run and as Ryan F said a lot of the upside is priced in with high P/E ratios. Biotech is very volatile as betting on a drug getting to market. Many fail at the last hurdle and all that R&D money is wasted. This is less of a risk with big pharma companies which have several drugs in the pipeline. Of course if biotech companies get it right, watch the share price soar.

As Ryan also points out a lot of funds already have a high weighting to pharma (biotech less so). I think we will always need drugs, so long term I think they are a good investment but as to their current value, well they are on the high side and normally when the herd are heavily buying I tend to sell and go for something very out of vogue (gold is a very good example!).

Therefore I would check what your fund allocations to pharma are, and if you are definitely keen you might want to own a small holding in biotech funds to complement the big pharma holdings in your funds (if you have them). Be prepared for volatility though.

Tech is similarly expensive. When we had the recent sell off earlier in the year, it was tech and biotech which were hit the hardest.

Linton

I would be wary of index funds in these areas - Apple is 15% of the L&G fund, Apple+Microsoft+Facebook+Google are 37%. North America is 79%. Far too little diversification in my view.

Both that fund and the L&G health/pharma funds, being trackers of a sort, will naturally focus on the largest companies. I would rather invest in broad holdings of smaller companies.

Linton

I have looked further into my own long standing holding in Henderson Global Tech as a result of this thread. ISTM that the "Technology" sector is now far from what it was, very much focused towards invention and development, "growth" as opposed to "defensive/value" investing.

Looking at some of the main constituents of the L&G fund we see Apple. I guess its a tech company, but it could also be considered as consumer electronics. If Apple why not Bang & Olafson, if them why not Hotpoint/Electrolux. Microsoft and Intel OK. IBM is more a services company now than pure tech. Google only partially as surely its search engine product providing a steady income has more of the characteristics of perhaps a utility. Now we come to Facebook. How on earth can anyone see it as a Technology company? Leisure/Entertainment perhaps. Just because it is based on IT doesnt make it a technology company. If Facebook why not the online brokers, Occado, online gambling etc etc.

I am very much a buy and hold investor, but when an investment strays from the purpose for which it was bought then its got to go.

Doshwaster

AXA Framlington Biotech has been the best performing fund in my portfolio this year. It had a dip at the start of the year but is up almost 50%.

I have a feeling that another correction will be due but over the long term I still see it as a very solid fund. I just wouldn't pile in if you are looking for short term gains.

I also have GLG Technology Equity but that has been growing more modestly and is pretty volatile.

Kendall80

Thanks all. It appears you're echoing my concerns. I think i'll probably give them a miss then. Watch them go on gaining 20% + a year for the next 5 years now. That'd be my luck

Kendall80

teepee83 wrote: »

Tech is similarly expensive. When we had the recent sell off earlier in the year, it was tech and biotech which were hit the hardest.

The year on year gains are quite eyecatching however.

They're no M Slater growth fund but 20k invested back in 09 would be looking very pretty right now. Missed the ball most likely.

Of course almost all tracker funds have grown since then but just not quite at such a rate.

Ryan_Futuristics

That's why you want to get on the train before it's left the station

To get returns like Mark and Jim Slater you want to be looking for very undervalued and usually unloved companies

I actually used Jim Slater's favoured PEG ratio looking at these funds, and I think he'd certainly be selling rather than buying right now