27% returns in one year. Should you invest in pharma funds to benefit from Covid crisis?

The pharma sector is benefiting a lot from the Covid-19 global pandemic. After being out in the cold for the last three years, phama funds are back with a a bang. The pharma sector funds are the number two on the return charts in the last one year. Gold, another beneficiary of the pandemic, is the topper of the chart.

In the last three months, shares of drug makers have bounced back because of easing of regulatory norms in the US and cheaper valuations. Financial planners and mutual fund managers believe that the outlook for the sector and the schemes is good as the world depends on vaccines and drugs at the moment.

“Vaccine-related companies will benefit the most in the Covid-19 situation and of course for future virus checks as well. The outlook is positive for the pharma sector funds,” says Dilshad Billimoria, Founder, Dilzer Consultants, a wealth management firm, based in Bengaluru.

The pharma funds category has offered 27.55% returns in the last one year, 8.05% in three months and 3.07% in the last one month. Similarly, the S&P BSE Healthcare Index has offered 15.84% returns in the last one year and 6.33% returns in three months and 3.70% in one month. Mutual fund advisors believe that these schemes are likely to perform well in future.

Now, should investors invest in pharma sector schemes is a question which has different answers. Some mutual fund planners like Chokkalingam Palaniappan, Founder, Prakala Wealth Management, based in Chennai, believes that investors could take advantage of the current rally in pharma. “Yes, certainly one can consider investing in pharma funds. We have been bullish on the sector for the past year or two. However, only those investors who can take the risk should opt for a sector scheme. Also, invest if you have a surplus, don’t cut down on liquidity,” says Chokkalingam.

Most mutual fund advisors generally don’t recommend sector schemes to retail investors unless they can take high risk and are aware of the particular sector. They also believe that even if you have a higher risk appetite, you shouldn’t go overboard with such schemes. “If one has a 10+ year horizon, an allocation of 5-10% in a portfolio is more than enough for a sector specific fund like pharma. It will also work as a diversifier in the portfolio,” says Dilshad Billimoria.

Both these planners also suggest that investors who can’t take the risk of betting on a sector specific schemes are better off investing in a diversified multicap scheme which can take exposure to pharma sector. “A multicap scheme that has a good exposure to quality pharma stocks can be a good bet. Those who are not in for a lot of risk can bet on multi cap schemes,” says Chokkalingam.

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