Persistently high inflation and the restrictive course of the central banks continued to dominate the first half of the year. In this series, Funds exclusive, our fund managers look back on the performance of selected funds and explain their view with regard to the second half of the year.

"We are betting on companies with a future-oriented business model and promising drug developments."

Harald Kober, fund manager ERSTE STOCK BIOTEC

Fund & Performance

The ERSTE STOCK BIOTEC invests primarily in companies in the developed markets from the field of biotechnology. The fund's investment process is based on fundamental business analysis. The majority of companies in this area can be found in the United States. As a result, Pacific and European equities tend to play a subordinated role in the fund. 

The performance is calculated in accordance with the OeKB method. The management fee as well as any performance-related remuneration is already included. The issue premium which might be applicable on purchase and as well as any individual transaction specific costs or ongoing costs that reduce earnings (e.g. account- and deposit fees) have not been taken into account in this presentation. Past performance is not a reliable indicator of the future performance of a fund.

Performance since start of the fund
Note: Past performance is not a reliable indicator for future performance.

Commentary by fund manager Harald Kober

  • Demand for growth shares rebounded in Q2
  • Biotech sector has bounced back significantly from year-lows since March
  • Focus remains on companies with future-oriented business model and promising drugs

 

How did the biotech sector fare in the first half of 2023?

In the first quarter of 2023, growth shares came under pressure from the shift of investors into value equities, and so did therefore the biotechnology sector. The economy picked up speed in the wake of the Covid 19 pandemic and amid rising inflation. Central banks in America and Europe continued the cycle of interest rate hikes started in 2022 to dampen upward pressure on prices.

The biotechnology sector as a growth sector came under more pressure than the general market. As in other downturns in the past, large-caps with solid sales and earnings figures fared better than small- and mid-caps, which often mainly work on R&D and revenue from real drug sales is still far off.

The number of IPOs and capital increases remained at historically very low levels, and financing opportunities for small and mid-cap companies remained limited. In the second quarter, the market for capital increases in the biotechnology sector recovered. Likewise, growth shares were increasingly sought after again, and investors switched back from value to growth.

How did the fund perform in this environment?

ERSTE STOCK BIOTEC benefited significantly from this situation. The takeover of Seagen by Pfizer in March 2023 also contributed positively to the fund performance. With this transaction, Pfizer secured promising drugs against metastatic cancer.

Another highlight was the takeover of IVERIC BIO by Astellas Pharmaceuticals in April 2023, which specialises in rare forms of dry age-related macular degeneration. Since March 2023, the biotechnology sector has recovered significantly from its year-lows.

What do you expect for the rest of the year?

With sentiment increasingly positive and many companies trading well below their cash levels, the signs are promising for a positive second half of 2023. The cycle of interest rate hikes could also come to a halt as inflation rates decline and bond market yields fall. This would be a good environment for growth shares and thus also for the biotechnology sector.

The big pharmaceutical and biotechnology companies still have full coffers. The valuations in the biotech sector remain very attractive, especially for small- and mid-caps. Takeover targets are likely to be increasingly companies that already have an approved drug available or are about to have one approved.

What will be your focus in the second half?

With the positive news from Alzheimer's research in the first half of 2023 by Biogen and Eli Lilly, the foundation has been laid for an exciting development of companies dealing with this disease.

We are betting on companies with a future-oriented business model and promising drug developments, but less so on Covid vaccine companies. Examples include the shares of:

  • Sarepta Therapeutics (gene therapy)
  • Amgen (Lumakras for lung cancer; can also be used for other types of cancer such as colon cancer)
  • Gilead (strong focus on oncology; last year the company acquired Immunomedics for a promising breast cancer drug)
  • AstraZeneca (focus on oncology; strong sales and profit growth expected in the coming years)
  • Biogen (recently published positive data from a phase 3 trial of a new Alzheimer's drug designed to reduce protein deposits in the brain, thereby slowing the progression of the disease).

 

Note: The companies listed here have been selected as examples and do not constitute investment recommendations. Any portfolio positions of funds disclosed in this document are based on market developments at the time of going to press. In the context of active management, the portfolio positions mentioned may change at any time.

Important legal note:

Prognoses are not a reliable indicator for future performance.

Disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site www.erste-am.com within the section mandatory publications  or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.