Why Gilead Sciences, Inc. Is A Top Mutual Fund Holding
The ongoing Ebola epidemic has refocused the world's attention on biotechs, as the ZMapp serum, from San Diego's Mapp Biopharmaceutical, helped treat two American infectees earlier this year. That's not the only thing the space has going for it, though.
VC Investment Is Improving
During the most recent recession, angel and venture capital investors opted for the faster returns they could get from info tech, and passed up biotech.
In 2013, however, the space received more than 15 percent of total venture investment, according to the National Venture Capital Association and Deloitte. Since last year, more than 120 life science and biotech firms have gone public.
Many Top Funds Are Biotech-Related
The Franklin Biotechnology Discovery Fund (FBDIX) sports a year-to-date return of 22.6 percent. Its top holding is Gilead Sciences, Inc. (NASDAQ: GILD), which is also prominently featured in several other top-performing biotech mutual funds.
Gilead's solid performance this year, in fact, has helped boost returns for many of these funds. The stock itself is up over 43 percent year-to-date, and has been in rally mode since getting support near its 200-day moving average in April.
Several analysts predict high demand for Gilead's Hepatitis-C drug, Sovaldi, despite the hefty price tag of $84,000 per treatment.
Other top-performing funds holding Gilead as their largest positions include the Rydex Biotechnology Fund (RYOIX), the T. Rowe Price Health Sciences Fund (PRHSX) and the Janus Global Life Sciences Fund (PRHSX).
Large And Liquid
With a market cap of $162 billion, and an average trading volume of 12 million shares per day, Gilead is large and liquid -- exactly the kind of stock fund managers like as their top holding.
With actively managed sub-sector funds, managers are under no mandate to track the S&P sector, as State Street's SPDR ETFs are, for example. That means they can allocate heavily into large caps, like Gilead or Amgen (NASDAQ: AMGN), while also picking more speculative issues.
Speculative stocks can add alpha to a fund, but they also add risk -- that's always the investing tradeoff.
Disclosure: At the time of this writing, Kate Stalter had no position in the equities mentioned in this report.
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