Jan Luthman: why I'm backing miners and pharma giants

Jan Luthman, manager of the CF Walker Crips UK Growth fund, a pick of Citywire Selection, says emerging markets will support growth for pharmaceutical firms in the years ahead.

Pharma sector set for positive reappraisal

CF Walker Crips UK Growth manager Jan Luthman and co-manager Stephen Bailey are sticking with their mining and pharmaceutical overweights and an underweight to UK banks.

The duo believe that if an upturn in the global economy materialises, it will not necessarily be dependent on a full recovery in the banking sector, but would prove enormously positive for the mining sector.

Luthman is also adamant that the pharmaceutical sector is facing a step change in earnings over the next few years, akin to what has gradually taken place in the tobacco industry over the past decade.

Pharmaceuticals is the biggest play in the fund, representing almost 16% of its holdings at the end of January, compared with the benchmark's 8% weighting.

Backing Glaxo and Astra

The duo hold GlaxoSmithKline (GSK.L) (5% of the portfolio) and AstraZeneca (AZN.L) (3.3%), as well as their US rivals Bristol-Myers Squibb and Pfizer.

'The [pharma] sector is analogous with tobacco, which has been the standout performer over the last 15 years. We think a similar transformation is coming to the pharmaceutical industry but it will be even stronger,' Luthman said.

'We expect to see a fundamental reappraisal of these stocks as quality growth stocks which will produce significant growth for years to come. We liken it to the tobacco industry three years ago; a mature growth sector with high risk of litigation and political interference but that has not really happened.'

Boost in healthcare spending

'We think pharmaceuticals are going through a similar transformation, as these companies turn more towards over the counter and lifestyle drugs, and emerging markets for growth,' Luthman added.

Luthman cites China as a good example of an emerging market trying to stimulate domestic growth, which in turn should be beneficial for pharma stocks.

'To boost domestic growth, they have to provide proper government-run healthcare to encourage people to spend rather than save,' he said.

Mining overweight

The fund currently has 14% in mining stocks, some 2% more than the index, with diversified miners Xstrata XTA.L), Rio Tinto (RIO.L) (both of which are Citywire Top Stocks®) and BHP Billiton (BLT.L) key holdings, along with mining royalty firm Anglo Pacific Group (APF.L).