2014 is set to be an interesting year for the biotechnology and healthcare sectors. A number of new drugs are set to hit the market, which could means profits for investors. Sven Borho, founder of OrbiMed and manager of the Biotech Growth Trust (BIOG) and IC Top 100 Fund Worldwide Healthcare Trust (WWH) is particularly excited about a new cancer immune therapy agent called PD-1 which is designed to treat solid tumours. He’s also keeping his eye on a new drug for multiple sclerosis; and a potential cure for Hepatitis C that may be approved in the second quarter of 2014.
By 2016 he expects that nine out of 10 of the best selling drugs are likely to have been developed by biotech companies, a rise on the current six out of 10.
You can use exchange traded funds (ETFs) - funds that track an index or a basket of assets like an index fund, but trade like stocks on an exchange - to invest in this area. However, only a few have UK reporting status (ETFs which don't have this can leave you with a nasty tax bill, because your gains will be taxed as income rather than capital gains).
Peter Sleep, ETF analyst at Seven Investment Management, suggests two of these. But they are both swap based, which may not suit some investors because of the counterparty risk involved.
Lyxor UCITS ETF MSCI World Health Care (HLTG) has a charge of 0.4 per cent, while db X-trackers MSCI World Health Care Index UCITS ETF (XWSH), which costs 0.45 per cent a year.
He says the slight difference in price is the only deciding factor between them as they both track the same global index, have UK reporting status, are listed in sterling in London and are even about the same size.
The index they both track is made up of around 120 global stocks, and is dominated by the US, which makes up around 60 per cent of this index. Pharmaceutical stocks make up 61 per cent of the stocks in the index, while 13 per cent are in biotechnology companies.
Technology
Technology - particularly "disruptive technology" is a growing theme within a number of actively managed funds. Tom Walsh, deputy manager at Monks Investment Trust (MNKS) is invested in everything from online hotel booking sites and book shops which have introduced consumers to new ways of buying, to 3D printing.
Read our interview with Mr Walsh
If you're interested in the sector but don't fancy paying active manager fees, there are a number of cheaper ETFs to choose from.
One of the best known technology indices is the NASDAQ, which is composed of US high-tech shares. The best known ETF tracking this, according to Adam Laird, head of passive investments at Hargreaves Lansdown, is the Powershares EQQQ Fund (EQQQ). It has a total expense ratio (TER) of 0.3 per cent and buys the shares it tracks.
But Mr Laird says this wouldn't be his first choice if he could only have one technology ETF. "There are many good technology companies worldwide, and the NASDAQ index covers a number of non-technology stocks like Starbucks (NSQ:SBUX) or Marriott (NSQ:MAR) hotel group. I'd opt for an ETF tracking the broader MSCI World Information Technology index, which covers several hundred stocks including British companies like ARM Holdings (ARM)," he said.
He likes db X-trackers MSCI World Information Technology Index UCITS ETF (XWSN), which has an all-in fee of 0.45 per cent.
Consumer goods
A revival in British consumer confidence spells a potential opportunity for investors. Many UK fund managers are buying up consumer stocks in the hope of cashing in on a surge in their spending. Meanwhile, consumer goods also remains a strong theme in Europe and emerging markets.
There isn't an ETF specifically covering UK stocks but there are several to choose from which have a broader remit. Mr Laird likes European products, in which UK companies are very prominent, therefore giving you a good exposure.
There are two strategies you can adopt when exposing your portfolio to this market:
The first is buying consumer staples - companies providing everyday goods, often around the world. These are covered by the MSCI Europe Consumer Staples index in which companies such as Unilever (ULVR) and Nestle (VTX:NESN) that make every day grocery products are prominent. Companies like these have a dominant worldwide presence and generate income from both developed and emerging countries. You could try the Amundi MSCI Europe Consumer Staples UCITS ETF (CS5), which has a TER of 0.25 per cent.
Your second strategy is buying consumer discretionary companies. These are companies which tend to make higher value, sometimes luxury purchases. The MSCI Europe Discretionary index covers companies like car makers, for example, Volkswagen (GER:VOW3) and Daimler (GER:DAIX.N), and high-end luxury brands like LVMH (PAR:LVMH). These companies flourish in times of economic recovery when incomes are rising. To access these consider the Amundi MSCI Europe Consumer Discretionary UCITS ETF (CD6), which has a TER of 0.25 per cent.
