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The fund’s objective is to provide long-term capital appreciation through buying equities in biotech, genomics and medical research companies. This means that investors will make money from any capital gains the fund offers and not from dividends.
Only one of its portfolio companies returns cash to shareholders, which is the $3.10 a share analysts have pencilled in for Amgen (AMGN:NDQ). The sector is not known for its dividends, with any revenue generated invested in new drugs.
‘If the time comes that the sector pays significant dividends I will need to question my growth outlook,’ Thomson says. ‘At the moment their cash is going back into investments and growth.’
The fact of the matter is that investors backing biotech companies should take a long-term view of the industry, ignoring short-term volatility that hits the industry from time to time by keeping the fundamentals in mind.
It is difficult for a sector specific fund such as AXA Framlington Biotech to avoid such market corrections. ‘I can only run the fund within the parameters that I am given,’ Thomson says. ‘It is not like I can sell biotech and buy utilities or energy [companies].’