Pharma funds rally: How to pick right one based on portfolio, risk, costs
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar explained what drives pure pharma funds and the trade-offs of large-cap, mid and small-cap and global tilts. He suggested using three- and five-year rolling returns and maximum drawdown.
What Abhishek Kumar said
What drives the upside in a fund that holds only pharma companies?
In my view, a pure pharma fund gives you concentrated upside, and that upside rests on a narrow set of drivers: the pricing cycle for generic medicines in the US market, how export demand holds up, and the strength of the patent pipeline. So before investing, I would be clear that the fund's fortunes depend largely on those few factors.
Should my pharma or healthcare fund lean towards large caps or towards mid and small caps?
I see it as a trade-off. Funds that lean towards large companies tend to be more stable, their holdings have sturdier cash flows, and they are usually easier to exit when markets fall. Funds that lean towards mid and small companies can find bigger chances to beat the benchmark, especially in niche chemical and API businesses. Which side suits you depends on how much stability you need.
Is it worth adding global healthcare exposure, or should I stay with Indian companies?
A global healthcare fund opens the door to innovation that may not be on offer in India, such as patented medicines and medical technology developed abroad. On the other hand, if what you want is to ride the growth in India's own drug manufacturing and in healthcare delivery here, I think a portfolio that stays purely domestic can do that job.
How should I judge a sector fund's track record beyond its recent returns?
I suggest looking at rolling returns over three- and five-year periods, measured across several market cycles, rather than one trailing figure taken from a single start date to a single end date. I would also check the fund's maximum drawdown, because it shows how much of your capital was exposed when the sector went through a trough.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on mutual funds
The article looks at choosing a pharma or healthcare mutual fund after the category's recent rally. It compares pharma-focused and broader healthcare funds, large-cap and mid or small-cap tilts, domestic and global exposure, and active and passive approaches. It also suggests judging funds on rolling returns, drawdowns, costs, turnover and fund size.
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Pharma funds rally: How to pick right one based on portfolio, risk, costs