Three offshore portfolios have done particularly well – Franklin Biotechnology Discovery, JPM Global Healthcare and Polar Capital Healthcare Opportunities.
While some investors steer clear of funds domiciled outside the UK, believing them to be riskier, these portfolios are domiciled in Ireland and Luxembourg, which should make them more appealing.
Franklin Biotechnology Discovery
Over the last three years, the Luxembourg-domiciled $450.4m Franklin Biotechnology Discovery portfolio has beaten every biotechnology and healthcare portfolio in the IMA universe.
The fund has made 78.08 per cent in that time while the NASDAQ Biotechnology index has made 86.94 per cent.
The fund has also done well in the current rally, picking up 43.61 per cent in the last year.
As healthcare is a traditionally defensive sector, it will not come as a shock that each of the funds in this article protected well in the market crash of 2008; the Franklin fund was far and away the best of these, however, returning 26.65 per cent that year.
It had a tough 2009, losing 1.3 per cent, but has performed strongly since, delivering positive returns each year since 2010, and is up 29.63 per cent so far in 2013.
The fund has been managed by Evan McCulloch since November 2000 and he was joined by deputy manager Jerel Banks in September last year.
While the majority of the UK healthcare funds are invested in major US and UK names such as Johnson & Johnson and GlaxoSmithKline, the Franklin fund focuses more on drug-developing biotechnology companies such as American company Gilead Sciences; Massachusetts-based Vertex Pharmaceuticals; and Medivation, a leader in the development of Alzheimer’s drugs.
The top-10 holdings account for nearly 50 per cent of the portfolio, making it a highly concentrated fund.
It has an annualised volatility score of 15.8 per cent over the past three years. As a point of comparison, the FTSE All Share scored 13.2 per cent.
The fund requires a minimum investment of $5,000 and has an ongoing charges figure (OCF) of 1.83 per cent.
JPM Global Healthcare
The four crown-rated, Luxembourg-domiciled JPM Global Healthcare portfolio is the next best-performing specialist healthcare fund over three years, returning 74.96 per cent.
It has significantly outperformed the MSCI World Healthcare index, which made 52.27 per cent over the period.
It has gained 29.39 per cent so far this year.
Performance of fund vs index over 3yrs
Source: FE Analytics
The fund, which is managed by Anne Marden and Scott Braunstein, has performed strongly over both the short- and long-term, beating the index over one, five and 10 years.
Among the fund’s top-holdings are blue-chip pharma names such as US giant Johnson & Johnson, Swiss pharmaceutical leaders Roche and Novartis and the dominant French pharmaceutical firm Sanofi.
The fund also has high-conviction positions in lesser-known US pharmaceutical companies such as Gilead Sciences, Celgene Corp – which manufactures drug therapies for cancer and inflammatory disorders – and immune system specialist Alexion Pharmaceuticals.
It is slightly less volatile than the Franklin portfolio, with an annualised score of 15.06 per cent over three years, according to FE Analytics.
The fund is more expensive than the others on this list, with a hefty minimum investment of $35,000 and an OCF of 1.9 per cent.
Polar Capital Healthcare Opportunities
The Dublin-domiciled Polar Capital Healthcare Opportunities fund has gained 51.96 per cent over the last three years, in line with the MSCI World Healthcare index, which is up 52.27 per cent.
The five crown-rated fund has also performed well in the recent rally, gaining 36.6 per cent while the index returned 35.77 per cent, according to FE Analytics. The fund has made 22 per cent since the start of 2013.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Polar Capital Healthcare Opportunities has been managed by Gareth Powell and Dan Mahony since launch in December 2007.
Unsurprisingly, the fund’s highest regional weighting is to North America, making up 73.4 per cent of AUM.
However, the only recognisable name in the fund’s top 10 is Johnson & Johnson.
The remainder of the fund’s highest-conviction bets – which make up 29.1 per cent of the portfolio – are names such as Japanese pharmaceutical company Astellas Pharma, Irish medical equipment and supply firm Covidien and Illinois-based pharmacy benefit management company Catamaran Corp.
The fund is the least volatile of any on this list, with an annualised score of 12.35 per cent over three years.
It has an OCF of 1.74 per cent and there is no minimum investment for retail investors.