MR MONEY MAKER: Don’t gamble on biotech – trust the experts at The Biotech Growth Trust instead
So, do we all understand biotech?
We might like to think we do in these pandemic times.
But of course the truthful answer for nearly all of us would be ‘No’.
Vital: We will never have the expertise of those people in white coats, most of whom seem to look and sound like Beaker out of The Muppets
I suspect that even after the most succinct of PowerPoint presentations, I would still be standing looking bewildered.
However, I think that most of us would see the sector is vital to our future, especially after considering the impact of Covid-19. The difficulty for us as investors is our basic ignorance of the topic.
Not that we are necessarily stupid but that rather we will never have the expertise of those people in white coats, most of whom seem to look and sound like Beaker out of The Muppets.
Why Does It Matter?
This sector is going to be of increasing value in the years to come, so we would be irresponsible to ignore it in a well-constructed portfolio.
If we move our attention to a post-pandemic era, then future developments are going to be vital.
Continued research and development will be important.
What Should I Do?
Trying to pick a great biotech stock for most of us would amount to little more than a gamble.
I have found the same when it comes to those trying to invest in oil exploration companies. Half the time the geologists cannot be sure exactly where the oil is, so how on earth can we know? So we should shorten the odds. This is achieved by finding a group which specialises in this field and has done so over quite a period of time.
It means a fund: probably not a passive index tracker (which would include both the winners and losers), but rather an actively managed portfolio run by investment managers who have the experience and understanding that we lack.
Stand up The Biotech Growth Trust. Here is a trust run by people with experience and have had a decade-long track record. The portfolio is well diversified but only within this specialist and risky sector.
Last year saw the stock rise considerably but it has fallen from its peak in February at 1750p to now a really rather attractive value of 1354p.
As an investment trust the shares can be traded quite easily.
An alternative, though, is a unit trust in the same sector and one would be Fidelity Select Biotechnology Portfolio FBIOX. The fund costs for unit trusts are usually higher than that of the investment trust, however, and personally I prefer a proven track record of a management team along with the ease of a traded stock.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.