The Biotech sector has delivered excellent returns over the last year and has also improved its reputation in the eyes of the public on the back of its response to the pandemic.

The sector is benefiting from being in the limelight with a strong IPO market and M&A activity providing support to valuations.

Analysts at investment bank Stifel believe that “every portfolio should have an allocation to the Biotechnology sector given the strong structural tailwinds and its non-cyclical nature.”

The analysts also think that the best way to play the sector is through active management and highlighted a number of investment trusts on the market that the firm has rated. It did note that given underlying valuations have increase significantly, especially in the small cap space, investors may wish to take some profit from their holdings.

Stifel’s top pick is the Biotech Growth Trust as because the favourable FDA approval backdrop and the IPO market remaining strong in the US and Asia, its portfolio will continue to benefit from its crossover portfolio and its Asian expertise.

The firm also likes rate the International Biotechnology Trust (IBT), which it rates as “positive”. It has outperformed its benchmark over the last few years, but has a more balanced portfolio by market cap as its lead manager is wary of valuations in the small cap space.

The team is less keen on BB Biotech as although like other funds it has a strong management team and has outperformed, they believe its 12 percent premium makes it too expensive when there are cheaper fund peers with similar offering.

Overall 2020 was a good year for biotech, with the Nasdaq Biotech Index finishing the year up 23 percent in sterling terms compared to the wider US stock market which finished up 15 percent, again in sterling terms.

Analysts at Stifel said in a statement: “The enthusiasm for the Biotech space is notable and the strong recovery in the sector puts the Nasdaq Biotech Index +37% above its pre-Covid levels.”