Fund That Gained 101% in Past Year Bets on Korean Drugmakers
Fund That Returned 101% in Past Year Bets on Korean Drugmakers
(Bloomberg) -- A South Korean health-care equity fund has climbed 101% in the past year helped by multifold gains in shares of local contract manufacturing organizations servicing the global drug industry amid pandemic-related disruptions.
Kim Jae-hyun, who helps manage the $158 million MiraeAsset Korea Healthcare Securities Master fund, said he plans to buy more shares of the nation’s CMOs if they correct in the near future. Kim sees a chance for the outsourced drug producers to become like Taiwan Semiconductor Manufacturing Co., the $380 billion pioneer of the semiconductor foundry model for manufacturing.
“The outbreak of the coronavirus has disrupted many factories for drugs in the U.S. and Europe, while the pharmaceutical companies still need to produce drugs for patients,” Kim said. “This is a great opportunity for Korean contract-based drugmakers -- even after the virus is curbed, the global pharmaceutical giants will keep giving orders to Korean firms for risk management.”
While health stocks in general have outperformed during the pandemic, demand is seen growing for CMOs in particular due to production disruptions and the scramble to find treatments and vaccines against the virus. MiraeAsset Korea Healthcare’s top holdings include Samsung Biologics Co., the biotechnology arm of Samsung Group which has jumped nearly 200% over the past year to become one of the country’s most valuable companies. The fund also owns shares in SK Chemicals Co., which has surged about 800%, boosted by backing from Bill Gates for a company unit involved in developing and making Covid-19 vaccines.
Kim said he’s reduced exposures to some large-cap health-care stocks recently, rotating to other stocks within the industry. Shares of Samsung Biologics fell as much as 1.4% on Monday, while Celltrion Inc. slipped as much as 1.3%.
The fund manager said he tries to thoroughly check the credibility of potential investees’ management and research so as to not get caught in “pump-and-dump” schemes. The large increase in the number of inexperienced retail investors this year has made the market more susceptible to such dangers.
While high valuations are also a concern, abundant liquidity is supporting the health sector while Korea’s economic growth is slow, Kim said. Some of MiraeAsset Korea Healthcare’s investments have skyrocketed more than 1,000% in the past 12 months, including Seegene Inc., which makes Covid-19 kits, and Alteogen Inc., which has licensed out its own biotechnology. Seegene trades at over 20 times book value while Alteogen’s multiple is more than 60 times.
“I know Korean health-care stocks are volatile, but in the long term, I believe Korea’s fundamentals in the health-care industry are great,” Kim said.
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