Can pharma and biotech ease pain in a financial crisis?

Asset Class in Focus

Ten years after the global financial crisis of 2008, FSA notes that pharmaceutical, healthcare and biotech stocks weathered that year better than other sectors.

Not many fund managers and investors would like a repeat of 2008. Around 90% of mutual funds available for sale at that time posted losses for the year. Although 2009 saw the market bottom out and then rally, only 27% of our sample managed to eke out a positive return for the two-year period from the beginning of 2008 to the end of 2009.

The sample includes funds registered for sale in Hong Kong and/or Singapore, with more than 10 years of track record. Funds that have since been liquidated are not included.

The pharmaceuticals, healthcare and bioscience sectors stand out as the ones that suffered least, on average, among all equity sectors, with the average loss of around 20% compared to 46.7% for all equity sectors.

The losses recorded in 2008 by ten funds in the sector varied between -9.8% for the UBS Equity Biotech Fund and and -30.1% of the Pictet Health Fund.

Biotech and pharma stocks were hit no less hard than the broader equity market in the latter half of 2008, as illustrated by a comparison to the MSCI World index (below).

The biotech sector suffered harder than pharmaceuticals, according to a 2009 analysis by Jim Zhang. With a large number of research and development programs put on hold, many companies underwent restructuring. Around 20% of US biotech companies were acquired, filed for bankruptcy or went out of business in 2009, according to a 2011 analysis by Biotech Now.

Nevertheless, the sector as a whole, seen through the prism of mutual funds (keeping in mind the survivor bias, for which we did not correct) appears to have benefited from secular trends, which carried it to great heights in the following eight years. The ten funds in our sample returned on average 176% between 1 January 2010 and 1 January 2018, while the average for all equity funds during the same period was 76%.

Considering the optimistic future many analysts see for pharmaceuticals, healthcare and bioscience in the next decade, it seems worth taking a closer look at these sectors, whether a crisis is imminent or not.

2008-2009 performance of pharma, health and bioscience funds

Returns in US dollars

Ten-year performance of pharma, health and bioscience funds

Returns in US dollars

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