quant group has launched a new fund offer focused on healthcare sector stocks—quant Healthcare Fund. The fund house, with its quantitative approach to investing, will pick stocks from the defensive sector, at a time it believes the economy is at an inflexion point. Healthcare investing is expected to gain from rising middle class and underpenetrated medical services in a growing domestic economy.

Here is a low-down on the NFO and other options in healthcare fund space. The NFO is open till July 11.

Healthcare sector

The fund will be benchmarked against S&P BSE Healthcare TRI which has beaten Nifty-50 and Nifty Pharma indices. The healthcare grouping has gained over pharma index (Nifty Pharma) owing to inclusion of hospitals and diagnostics in the mix. The BSE Healthcare index has returned 85 per cent in last five years compared to 50 per cent return for Nifty Pharma. The index has also beaten the Nifty-50 index by 10 percentage points in the period.

Hospitals are expected to gain from geographic expansion, strong pricing power and demand. These factors are supported by a lack of viable public hospitals and the growing middle class.

From an investible universe of four stocks only five years ago, hospitals now have more than eight viable listed opportunities to invest in. Pharma companies have rediscovered strength of Indian pharma market in the last five years, overcoming weak pricing power in the US markets.  

The drug shortages in the US due to margin compression for producers, improved US pricing is expected which has been fuelling pharma stocks recently.

Due to the growing frequency of US drug shortages resulting from margin compression faced by producers, there is an anticipation of enhanced pricing in the US, which is currently contributing to the buoyancy of pharmaceutical stocks.

Despite the high valuations, diagnostics segment offers scope for earnings growth as it is becoming an organised market.

Investment strategy

The fund builds on inflexion points in economies and economic cycles. The fund identifies that the risk appetite is nearing its bottom currently and liquidity conditions are expected to improve globally. In India, the fund house expects sector funds to gain from the current inflexion point and has launched the current offer.

The fund also launched quant Business Cycle Fund in May-2023 and has returned 20 per cent to date while the benchmark returned 25 per cent.

quant Healthcare fund will invest 80 per cent in pharma, biotech, hospitals, medical device companies, diagnostics and other healthcare allied companies.

The fund employs a top-down approach starting with global macro indicators before analysing shifts in domestic perceptions.

The individual stock is filtered based on the fund’s VLRT framework which emphasises on valuation, liquidity and risk analytics. Analysis from investment managers, research and analytics teams also arrive at the timing factor to achieve stock selection.

Our take

While there are active funds in pharma/healthcare space, this fund offering introduces quantitative active management to the sector.

A similar approach is employed for several other funds under management for quant group, including a small cap, large cap and multi asset classes.

But quant MF has one sector fund, quant Infrastructure Fund, which has a 15-year track record (fund ownership changed hands in 2018) and has delivered benchmark level returns. quant BFSI fund was launched last month. While the team has proven track record, sector fund management with a quantitative approach is largely untested.

Amongst the other fund houses, pharma/healthcare sectoral investing has a proven track record.

There are three-five other funds that are actively investing in healthcare with up to ten-year track record. We had recommended Nippon India Pharma fund earlier in the space which leads its peers and has returned 17 per cent CAGR returns over 10 years. But for investors looking for a quantitative based active approach to healthcare investing, quant Healthcare Fund can be a new avenue.

Investors can start with small corpus to test the fund performance.

Published on July 8, 2023