In times I’ve termed wilderness periods – the stagnant years for biotech stocks after a bubble bursts – investors shy away from exposure to the binary risk and funding requirements of drug development. (Also see "Stock Watch: Exploring Biotech’s Route Through Bubble And Wilderness" - Scrip, 26 September, 2023.) For specialist institutional investors who have to provide their pension fund and other investors with biotech exposure come fair weather or foul, there are the options of running with higher levels of cash, geographic diversification and tilting their portfolios towards lower-risk investments. Few funds outside of hedge funds can run with cash much more than 5% of net assets because investors do not pay portfolio managers to do a job they can easily do themselves. Biotech exposure outside the US is only a temporary option because, like the opening of biotech IPO windows on NASDAQ, which are closely followed by those on other markets, biotech sell-offs in other markets follow NASDAQ’s lead.
Some fund managers may have the option of a higher allocation to big pharma companies but while the NASDAQ Biotech...