CMG's guaranteed health and biotechnology fund plans to invest 80% of the fund in treasury bonds and the remaining 20% in 43 actively managed drug, biotech, specialty pharmaceutical and medical technology stocks. Of these, 60% will be pharmaceutical stocks and 14% biotechnology stocks. As long as investors don't withdraw their money before the fund matures in March 2004 they will get back, at a minimum, their principal, minus annual management fees of 2% to 2.5%. If the health stocks get wiped out, investors will at most lose the opportunity cost of investing in something else in the case of bank deposits, a compound interest rate of about 20%. The fund carries no up front fee.
The actively managed equity part of the fund will be managed by Joe Anderson, a scientist who was formerly head of policy at the Wellcome Trust, the world's biggest medical foundation. He was also formerly a securities analyst at Dresdner Kleinwort Benson. He joined CMG in October 1999. The fixed income part of the fund will be managed by Kelvin Colglazier, director of fixed income for CMG in Asia.
"Guaranteed funds are not meant to attract sophisticated investors," says Thomas Waring, chief executive officer of CMG in Asia. "They're meant to compete with bank savings accounts."
Hong Kong punters not risk-takers
CMG's health and biotechnology fund is the second guaranteed fund launched by the company in two months. It follows the launch of a guaranteed technology, media and telecommunications fund, which attracted $122.3 million. The company doesn't expect to raise that much for its health fund.
"Expectations are very different now than they were before, but investors will hopefully be reassured by the growth prospects of the fund," says Anderson.
The fund penetration rate in Hong Kong is just 8% compared to about 50% in the US. Between bank deposits and expensive full-risk funds there's a dearth of investment opportunities, says Waring. CMG is lining up more guaranteed funds to help fill the niche, he says.
"It's a common myth that Hong Kong people are punters and speculators," says Waring. "They punt and speculate with only a very small portion of their overall wealth. We wanted to design a fund that would get them out of dollar-denominated bank deposits."
Waring's fund will be competing with SSB's CitiGarant health sciences fund. Unlike CMG, SSB won't invest directly in the stock portion of its portfolio. Instead it will invest in warrants linked to the performance of a basket of 21 stocks. Of these, 60% will be pharmaceuticals, 16% biotechnology stocks and 24% medical devices. It will charge an annual management fee of 0.70% and will mature at the end of May 2003.