This pharma fund is offering 71% returns in one year | Economic Times

Pharma funds have been topping the return charts since the Covid-19 pandemic hit the world. The category that invests mostly in the pharmaceutical sector has offered 58.16% returns in one year and 48.25% returns in this year to date, according to Value Research, a mutual fund tracking firm. Among the pharma funds, DSP Healthcare Fund is ahead of others in the return charts with 71.4% returns in one year.The fund was launched in 2018 and it manages assets worth Rs 708 crore. The fund is managed by Vinit Sambre, CIO-equities, DSP Mutual Fund. The fund doesn’t have a long track record but has done well in the short term. The fund has offered 71.30% in one year, 69.82% in six months and 25.71% in three months. Mutual fund advisors believe that short-term performance of equity funds should not be seen in isolation. Take a look at the returns of the fund vis-a-vis its benchmark and the category average. 3-month returns (%)6-months returns (%)1-year returns (%)DSP Healthcare Fund25.7169.8271.30 S&P BSE Healthcare TRI17.3770.2552.58Pharma funds category average18.3364.1058.16 Source: Value ResearchThe scheme’s portfolio has 22% small caps, 43% mid caps and rest in large caps. Here are the top 10 holdings of the scheme:StockAllocation (%)Ipca Laboratories8.05Dr. Reddy's Lab Healthcare7.85Cipla7.49Divi's Laboratories6.79JB Chemicals & Pharma Healthcare5.95Aarti Drugs5.29Procter & Gamble Health4.96Abbott Laboratories3.64Intuitive Surgical Inc. (USA)3.44Jubilant Life Sciences3.40 Source: Value ResearchMutual fund advisors like Harshad Chetanwala, CFP, MyWealthGrowth, say that investors shouldn’t lap up pharma funds looking only at their returns. “Pharma and healthcare sector got benefitted from the overall Covid-19 situation. This sector is expected to have a significant role in getting normalcy back around the world. This is the reason why Healthcare funds have performed well this year and may continue to do so for some more time,"says Chetanwala. "From the near-term perspective, Pharma and Healthcare looks like an attractive sector. However, investors should be cautious before going overweight in any particular sector, including healthcare. Sectoral funds have more risk associated with it, as they can be cyclical in nature,” adds Chetanwala.There is no doubt that this fund has done well in last one year, but its peers have performed almost equally well. One thing that might have worked in the fund’s favour is that the fund was launched in November 2018. Pharma has been though tough time in the last three years and 2018 it was at the bottom. Since this fund’s launch, the sector has only gone up. Also, the fund has 65% of its monies invested in mid and small caps, which recently saw an uptick. "My view is that short-term returns of the current year should not be the only parameter to invest in Pharma and Healthcare funds. If you want to invest, remember that the holding period for such sectoral funds is much higher than equity diversified funds," says Chetanwala.Vinit Sambre, CIO-equities, DSP Mutual Fund, fund manager of DSP Healthcare Fund:Tailwinds in the pharma sector helped us in the performance of DSP Healthcare Fund. Additionally, our focus on companies with prudent capital allocation, positive cash flows, honest and competent management and rising ROE matrix has helped. Beyond the factors mentioned above, we have created a few buckets and made allocations depending on the risk and opportunities within each of them. To explain the point, we had higher allocation to companies with higher domestic sales and some element of international revenues. We observe that the domestic business tends to remain highly profitable with high ROEs. The domestic market also saw some pick-up lately which helped this selection. Our second largest allocation to CRAMS (Contract Research & Manufacturing), where the growth saw an acceleration due to stocking up of medicines by whole world on account of Covid-led supply chain disruptions also benefited us. Some of these gains may moderate in the future as businesses normalise but the long term opportunities still stay. Further, our investment in international companies focused on medical devices technologies have allowed us to diversify into areas which have immense growth potential and yet not available to play through Indian companies. We are quite excited, looking at the cutting edge technologies which these international companies are offering.In investment, the rear view mirror should never be used. A large part of the gains is already behind us and to expect similar returns would not be prudent. The sector which was trading at a discount as compared to its own long-term average is now trading at higher range of the band, leaving little scope for further valuation re-rating.