Only one category of equity mutual funds showed a positive return last month. This raises the question: should you consider adjusting your allocation strategy?
Mutual Fund: The pharmaceutical and healthcare sector-based funds stood out as exceptional performers in the past month, delivering a positive return of approximately 1.34%. This success can be attributed to the positive Q3 results outlook in the pharma sector, which influenced stock prices. Additionally, various other factors have contributed to this impressive performance.
Feroze Azeez, Deputy CEO of Anand Rathi Wealth Limited, noted that pharma funds outperformed other sectors with an average return of 1.34% in the last month. This was driven by the positive Q3 results outlook and growth drivers such as government support through PLI incentives, enabling domestic manufacturing of imported drugs.
Many companies in the sector have expressed optimism about Q3 earnings, citing factors such as increased demand in the domestic market, new product launches, improved gross margins, and expansion in the US business portfolio. This positive sentiment has led to a rally in the sector ahead of the Q3FY25 earnings announcement.
Mirae Asset Healthcare Fund boasted the highest return of approximately 2.49% in the last month, followed closely by WOC Pharma and Healthcare Fund with a return of 2.44%. Aditya Birla SL Pharma & Healthcare Fund also performed well, delivering a return of 2.41% during the same period.
The HDFC Pharma and Healthcare Fund and SBI Healthcare Opp Fund both posted a return of 2.34% each during the specified time period. Nippon India Pharma Fund, the largest fund in the category based on assets managed, offered a return of 1.41% during the same time frame, managing assets worth Rs 8,914 crore as of November 30, 2024.
Being the only category to provide a positive return, experts recommend that investing in this sector may increase concentration risk. Therefore, investors should consider diversifying their investments across active diversified equity funds to gain exposure across various sectors and categories, reducing the risk associated with any single sector’s performance.
Feroze Azeez stated, “In the last year, the pharma sector has been among the top 5 sectors generating the highest returns in CY 2024. This continued focus from investors is due to the sector’s performance.” However, he cautioned that these funds are highly concentrated in a single sector, increasing concentration risk. Relying solely on recent performance may not guarantee future success, so diversifying across active diversified equity funds is recommended.
Over the last three months, only three equity mutual fund categories have shown positive returns: Technology sector-based funds, Pharma & Healthcare sector-based funds, and healthcare funds. Pharma & healthcare sector-based funds had an average return of approximately 1.93% during this period. WOC Pharma and Healthcare Fund had the highest return of around 6.14%, followed by SBI Healthcare Opp Fund with a 5.43% return in the same timeframe.
The Quant Healthcare Fund experienced the largest loss of approximately 7.21% during the same time period, followed by the Aditya Birla SL Pharma & Healthcare Fund which saw a negative return of 1.55%.
Despite other equity mutual fund categories delivering negative returns, pharma and healthcare funds have continued to offer positive returns. With Budget 2025 on the horizon, experts believe that while there are numerous suggestions for the sector, it is not advisable to invest solely in a single sector or theme.
Feroze Azeez stated, “There have been various proposals put forth by stakeholders in the pharma and healthcare industry, such as policies to support innovation, expanding the PLI scheme, reinstating R&D tax deductions, and broadening the patent box regime.”
While the sector shows promise for a positive outlook, investing solely in one sector or theme is not recommended due to the increased concentration risk associated with its performance. Sector schemes, including pharma funds, are best suited for aggressive investors who are comfortable with high risks and volatility. It is important to note that these schemes may underperform for extended periods.
New or inexperienced investors are advised against investing in pharma funds. Investors with a substantial portfolio can consider using these schemes to diversify, allocating only 5-10% of their total portfolio to sector schemes like pharma. Well-informed investors may also strategically invest in these schemes.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.