Pharmaceuticals are entering a ‘nightmare scenario’ spurred by the US election cycle, but European equity veteran Laurent Dobler believes attractive entry points could emerge.
The Citywire AA-rated manager, who is named across several funds at French firm Comgest, told Citywire Selector he expected the sector to come under increasing pressure towards the end of 2016.
Pharmaceuticals – notably biotech – has been the limelight ever since Hillary Clinton discussed the need for price controls earlier this year. While some fund managers believe the impact will only be short-term, Dobler is urging investors to act with caution.
‘What is keeping us busy is pharmaceuticals because we are in an election year. Every four years we get a nightmare scenario for pharmaceutical companies and after this year things are not doing fantastically but there are still areas of innovation.’
While Dobler expects the brunt of the pressure to be applied to US stocks, he believes there could be knock-on effects for Europe. Despite this, the sector veteran is keeping faith with European companies.
‘We can see innovation in curing niche illnesses and I think the opportunities will remain in the US, so we are not going to switch suddenly into alternatives in Germany or the UK, for example. We have to be even more careful in every day as the pressure is going to be on day-to-day drugs.’
Not sick of healthcare stocks
Healthcare is the largest sector exposure in the €2.1 billion Comgest Growth Europe fund, which Dobler co-runs with Franz Weis and Arnaud Cosserat. This is while large-cap firms Novo Nordisk and Coloplast sit within the top five holdings.
‘We did reduce our overall healthcare exposure – which is still an overweight – it was not by much. We are looking at it right now and we believe companies such as Novo Nordisk, which has innovation, as potentially adding to it if it comes under pressure. We haven’t done anything yet.’
‘We hope to focus on the companies which are innovating and have a new product and even if it is not as good as you thought it was going to be, at least you are paying for growth in a sector which could come under pressure.’
Dobler said the fallout represented something of a ‘climax’ for the sector after a turbulent year and reiterated the need for investors to target ‘pockets’ of growth. ‘We believe the mid-caps are the ones that will suffer and, while we are all-cap, there are small-cap stocks with upside potential.’
The Comgest Growth Europe fund returned 31% in euro terms over the three years to the end of August 2016. This compares to a 25.9% rise by its Citywire-assigned benchmark, the FTSE World Europe TR, over the same period.