Candriam Eqs L Biotech N USD Cap

Analyst Report
Morningstar's Take
|21/05/2019

by Jeffrey Schumacher, CFA
*  This rating and report were issued for a different share class of this fund. The performance and fee structure of this class may vary from that referenced.


Candriam Equities Biotechnology benefits from an experienced and talented lead manager and has a well-structured and thorough process in place, but the firm’s decision to drastically increase the maximum capacity of the strategy to accommodate significant inflows lowers our conviction and therefore we downgrade the fund to a Morningstar Analyst Rating of Bronze from Silver.Rudi van den Eynde has been the long-standing lead manager of the strategy since its inception in 2000. With his experience, depth of knowledge, and wide industry network we believe he is instrumental for this strategy. Servaas Michielssens, who joined the fund in 2016 as an analyst, has been promoted to comanager in 2019. Van den Eynde remains the key decision-maker though, and key-man risk is still present. Analyst Tasuku Tikada decided to leave the firm in 2019 and has been replaced by Malgorzata Kluba. Tikada’s departure marks the third analyst departure since 2016, indicating instability in Van den Eynde’s supporting team. The positive news is that a third analyst will be recruited, which is a welcome additional resource as the team’s workload increased with the recent launch of an oncology fund, which the team runs in addition to a broader healthcare fund.The process applied is one of the other strengths of this strategy. Qualitative in-depth research and a deep understanding of clinical data are the core of this well-designed process. The team constructs a diversified portfolio, which consists of large-cap stable growers combined with smaller industry innovators.The fund’s asset base rose rapidly from USD 750 million in January 2018 to USD 1.9 billion per end of April 2019, which was followed by an opportunistic increase of estimated capacity to around USD 3 billion, from USD 1.7 billion previously. We believe the higher asset base makes the fund less nimble and can shrink its investment opportunity set, potentially limiting the fund’s ability to invest in smaller companies and its alpha generation going forward. Indeed, the significant inflows coincided with a rise in large-cap exposure and a growing exposure to large pharmaceuticals companies like Roche or Novo Nordisk.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleA high-risk sector fund.
Morningstar Pillars
PeoplePositive
A highly skilled fund manager who, unfortunately, has a lot on his plate.
ParentNeutral
Candriam offers a wide range of funds with only a few bright spots.
ProcessPositive
A well-structured process that concentrates on in-depth qualitative analysis.
PerformancePositive
An impressive track record.
PriceNegative
The fund's fees are above average.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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