NFO review: DSP Healthcare Fund, betting on a turnaround in the sectorDSP Mutual Fund has launched a new fund offering (NFO) focused on healthcare, christened DSP Healthcare Fund. The NFO opened on November 12 and will close on November 26.

The fund, which would predominantly be investing in equity and equity-related securities of healthcare and pharmaceutical companies with some portfolio allocation to foreign securities, joins six other peers in the pharma/healthcare space. Pharma and healthcare funds are thematic in nature. Hence, these investment products are slightly more risky than a diversified equity fund. This is one of the reasons not every fund-house has the bandwidth to manage such thematic funds.

Want to know more about this scheme? Read on and don’t forget to read RupeeIQ’s take at the end.

The fund USP

This pharma/healthcare fund would not have been that different from others if it were not for its focus on international stocks. Yes, the DSP Healthcare Fund may invest up to 25% in international healthcare stocks, especially large US companies, thereby giving investors access to international diversification as well.

As a healthcare fund, the primary aim is to draw benefit from three major growth drivers in India – growing demand, export opportunities, and a conducive policy environment. All of us know that healthcare space is doing pretty good and we are paying a lot. Exposure to healthcare stocks can help you gain some financial advantage of this trend. Growing elderly population, changing disease patterns, a rise in medical tourism and better awareness of wellness, preventive care, and diagnosis, are factors that are expected to contribute to the demand. Export opportunities are expected to increase. DSP MF believes the things will get better for Indian export driven healthcare forms after the bottoming out of the US pricing cycle, and opening up of the Chinese market.

The word ‘healthcare’ widens the scope of the fund. Government policy measures like Ayushman Bharat is expected to generate volume growth for the private sector including hospitals, diagnostics, pharmaceutical companies & medical insurance. By being exposed to different parts of the healthcare system, DSP Healthcare Fund can do better.

DSP Healthcare Fund’s ‘healthcare’ approach is similar to the last few launches in this space including that of ICICI Prudential Pharma Healthcare and Diagnostics Fund, Mirae Asset Healthcare Fund and Tata India Pharma & Healthcare Fund.

Outlook

This is an interesting time for the Indian healthcare sector. Despite disappointing earnings growth in FY18, many companies are at an inflection point and have the potential to be re-rated as temporary disruptions get resolved, feels DSP MF.

Indian investors can take advantage of the potential in the space with an added element of global diversification to manage volatility.

India is expected to be part of the top three pharmaceutical markets in terms of consumption by 2030. Many of these Indian healthcare companies have good long-term potential as they are focusing on R&D and are reducing their overheads with the results likely to reflect in their profitability over time. Government measures like Ayushman Bharat as part of a conducive policy are also expected to spur growth in the sector. Investors can also look to benefit from international healthcare exposure which may help in reducing portfolio volatility and could also help deliver better returns per unit of risk, DSP says.

Fund benchmark – The benchmark for the fund would be the S&P BSE Healthcare Index. The index has about 69 stocks. The index has price/earnings valuation of 32 times and a price/book valuation of 3.4 times.

Fund managers – The fund will be managed by Aditya Khemka and Vinit Sambre. Jay Kothari would be the dedicated Fund Manager for overseas investments.

Khmeka joined DSP Investment Managers in 2015 and have reach experience of more than 13 years. He has worked locally across geographies (US, EU, Latin America, India). He started his career working with Glenmark Pharma in 2005. Also worked in Brazil and Argentina. He has covered US generics companies like Teva, Mylan etc. for Nomura (UK). Also, covered MNC Pharma companies like GSK, Novartis, and Sanofi.

Sambre, the head equities of DSP, is famous for managing the DSP Micro Cap Fund since June 2010. He is also the Fund Manager for the DSP Small and Mid Cap Fund. Sambre specialises in the small and mid cap space. He has been a portfolio analyst for the firm’s Portfolio Management Services (PMS) division, which manages discretionary accounts and provides advisory services to institutional clients. As a research analyst, his focus was on sectors including Pharmaceuticals.

Exit load – While there is no entry load, exit load would be 1% if redeemed within 12 months.

Peer performance – There is a great deal of variation in returns among peers. In last 1 year, pharma/healthcare funds’ returns vary from -2.1% to +14.7%. In the 3 year phase, returns range from -4.8% to +2% CAGR. In 5-year period, returns range from 8.8% to 14.6%. In 10-year horizon, returns range from 16.6% to 23.8%. Recently, in July 2018, Mirae Asset had launched a new fund offer focused on healthcare called Mirae Asset Healthcare Fund. The fund has since then done an absolute return of 5.5%.

RupeeIQ take – DSP Healthcare Fund allows you to capture the growing demand for healthcare in India, driven by factors like rising incomes, increasing awareness & ability to spend more on health. You invest in not just today’s big healthcare companies, but even tomorrow’s potential leaders, which happen to be more reasonably valued today. The fund gives you access to even international healthcare stocks (especially large US companies), which historically have helped generate a greater return per unit of risk. The valuations of the sector are depressed which makes this fund a deep-value buy for only long-term investors. If you believe that the healthcare sector provides a compelling investment opportunity and are willing to remain invested for the long-term, do bear in mind that this is a thematic play and will have ups and downs in the short-term.

Disclaimer: Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Author
Rahul Sharma

Rahul Sharma is a contributing writer with RupeeIQ. He can be contacted on contact@rupeeiq.com