What are we looking for?
Health care equity funds – and just how healthy their performance was in the second half of last year.
The screen
We looked at the performance of the sector's mutual funds and exchange-traded funds for the six months to Dec. 31. U.S. dollar, segregated and duplicate versions of these investments were excluded.
What did we find?
Biotechnology investments continued to boost fund performance in the second half of 2013.
The chart-topping TD Health Sciences fund relied heavily on this region of the health care investment landscape for its returns. The fund gained 26.7 per cent in the six-month period, and 57.3 per cent in the year.
"The [biotechnology] category is up close to 70 per cent in the last 12 months," said Taymour Tamaddon, a portfolio manager for the TD fund. "But really, all of health care has performed really well – from med-tech, to services, to specialty pharma, most of these categories outperformed the S&P 500 over the last 12 months."
Mr. Tamaddon said his fund wouldn't "run away" from biotechnology investments solely because of their strong performance, but the fund is trying to be more sensitive to the runup and must look harder for new investments than it did two years ago.
The multiple that the market is putting on the biotech industry's price-to-earnings ratio is unlikely to keep appreciating at the same rate, Mr. Tamaddon said.
In fact, the whole health care sector may cool off somewhat in the coming year. "No one should be anticipating that [same] level of performance," Mr. Tamaddon said.
But he added that he still thinks "there's an argument for health care to reasonably outperform the S&P 500 in 2014."
The TD fund is primarily weighted toward the United States, although Montreal-based Valeant Pharmaceuticals International Inc. has been one of the fund's top holdings for the past five years and contributed significantly to the fund's performance, Mr. Tamaddon said. In that time, the stock has soared 1,000 per cent.
The CI Global Health Sciences Corporate Class fund had the second strongest return of 24.9 per cent in the last half of the year, but posted the strongest return of 61.8 per cent in the year.