The BSE Healthcare index, which was on a bull run since early 2012, came to a halt in April 2015 and has been in a sideways consolidation phase lately. However, it continues to outperform the Sensex over five- and 10-year periods. This outperformance is mainly due to a strong rally during 2009 and 2010 as well as an accelerated rally between 2012 and 2014. Many pharma and healthcare stocks in this rally became multi-baggers.

This is reflected in the pharma and healthcare funds as well, which have delivered a category average return of 5.8 per cent, 27.2 per cent and 20 per cent over one, three and five-year periods, respectively. In these periods, they have comfortably outpaced the BSE Healthcare index by 2 to 5 percentage points.

SBI Pharma leads

There are four funds in the pharma sector — Reliance Pharma, SBI Pharma, UTI Pharma & Healthcare and Tata India Pharma & HealthCare launched in December 2015.

SBI Pharma leads the category over one, three and five-year periods. The scheme’s picks in the mid and small-caps space helped performance over the past year. For instance, Bengaluru-based Sequent Scientific’s stock price has more than doubled in the last one year. Likewise, other small mid-cap stocks that boosted the scheme’s performance include Natco Pharma, Aurobindo Pharma and Strides Shasun.

The fund exited Dr Reddy’s Laboratories following regulatory issues at three of its manufacturing facilities; this helped the fund contain the downside better than its benchmark – BSE Healthcare Index.

Reliance Pharma ranks second, clocking 10 per cent over a one-year time-frame. The fund loaded up on Abbott India, which provided a leg-up to its performance. Other large-cap names that aided performance include Sanofi India, Divi’s Laboratories and Biocon. The rally in mid-cap stocks, such as Aurobindo Pharma and FDC, also helped spice up returns. The fund was a buyer in the recently-listed pharma and healthcare stocks – Alkem Laboratories, Dr Lal PathLabs and Narayana Hrudayalaya.

UTI Pharma and Healthcare, though it outperformed its benchmark, Nifty Pharma, has lagged peers SBI Pharma and Reliance Pharma. Its strategy to diversify investment across 25 stocks did not pay off. Though this reduced concentration — top 10 stocks account for about 70 per cent of the scheme’s assets compared with 83-84 per cent for its peers — it did not help performance. A higher large-cap slant also impacted performance as the scheme’s big bets, such as Sun Pharmaceuticals, Dr Reddy’s Laboratories and Cipla, were on a falling spree due to regulatory issues.

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