The biotech industry has grown significantly over the past few years; however, the recent macroeconomic outlook has pressured shares of rapidly growing companies in this sector.
Still, falling stock prices are a significant long-term investment opportunity for a sector whose underlying performance is less dependent on the macroeconomic outlook, says Peter Hughes, Fund Manager at AXA Investment Managers.
“These drugs tested in clinical trials, they don’t care what the price of oil is, they don’t care how much it costs to fill up at a gas station. The trials will either work or they won’t, and they won’t necessarily be influenced by the macro environment,” he says.
Indeed, the most important variables to consider when investing in biotech companies include management quality and the science behind their offering. Hughes says that from an investment perspective, AXA IM doesn’t change their cost of capital assumptions through an economic cycle. “We feel the same level of comfort with the stocks we bought a year ago as we do today”, he says.
Hughes says that the exciting outlook for the sector is fuelled by hundreds of innovative projects that could see strong performance. With an aging population and rising global obesity levels, the necessity for more healthcare spending will further fuel investment in the sector.
“We are buying what we think is the best science and the best management teams to drive that science forward. We think that is the best approach to investing”, he says.
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