With the current crisis pushing global demand for healthcare, innovation is pushing the sector to new heights
An Unprecedented Opportunity for the Healthcare Sector
Covid-19 has pushed the healthcare sector into the front line of this crisis. The pandemic has offered segments of the sector an unprecedented opportunity to innovate and to fast track product and service development, highlighting a tech-rich growth dimension on top of its traditional defensive characteristics.
Providing downside cushion
Historical data shows that the healthcare sector is resilient in down turning markets. The US stock market fell off a cliff edge from its peak in February amid the COVID-19 outbreak and all sectors were negatively impacted. The S&P 500 was down 34% from its February peak, while the S&P 500 Healthcare sector declined only 28%, as at 23rd March 2020. By 9th April 2020, whilst the S&P 500 has been up 25% from its trough in March, its Healthcare sector has climbed 27%.
The supportive backdrop to grow
In recent years, the health sector has been exhibiting more growth aspects in new drug development, cancer treatment and diagnostic technology; credit to ageing populations in large parts of the developed countries and strengthening economies in developing countries. Rapid improvement in living standards and changes in lifestyle also fuel modern day health problems, such as diabetes and obesity. Demands for healthcare products and services are rising, especially in emerging economies where consumers are becoming more affluent and healthcare more affordable.
The unprecedented opportunity
The urgency of finding a cure to the pandemic has pushed companies, namely those that use innovation and technologies to aggressively develop vaccines or treatments, into the spotlight. So far numerous companies, scientific groups and institutions in the US, Europe, China and Japan have shown their commitment to combat the outbreak, equipped with support from policy makers to fast track the approval process. At the same time, the companies that provide platforms and telemedicine services for online medical diagnosis and remote medical care are also owed their recognition and status. The US government has been encouraging people to use such services to ease the burden of hospitals and A&Es. Medical insurance companies have provided incentives in terms of zero upfront cost for treatment. These policies may only be designed for the duration of the outbreak, but this could have a long lasting effect on the shape of future medical services and biotech research, not only in the US but also globally.
Our ES Share Centre Multi Manager Growth Fund has raised its position in iShares S&P 500 Health Care Sector ETF as we see the opportunities prevail in the sector through the crisis. For the investors who would like to add some growth element whilst maintaining a downside cushion, now could be the good time to invest in the sector.
How to invest in the Healthcare Sector
The following vehicles provide investors the platforms to be involved in the opportunities in the sector.
Polar Capital Healthcare Opportunities Fund is actively managed by Daniel Mahony and Gareth Powell, both of whom have extensive knowledge of healthcare from an industry level and a stock selection/portfolio management level. The team comprises of five sector specialists with over 120 years of combined industry experience. By investing in a globally-diversified portfolio of companies within the healthcare industry, the managers aim to preserve capital and achieve long-term capital growth.
Worldwide Healthcare Investment Trust actively invests in the global healthcare sector with the objective of achieving a high level of capital growth. The portfolio consists of diversified holdings in pharmaceutical, biotechnology, healthcare equipment, services and technology companies. Owned by US group OrbiMed Capital, the trust is actively managed by Trevor Polischuk and Sven Borho, who have many years' experience of investing in the healthcare sector. They are further supported by a large research team.
Hikma Pharmaceuticals is also a generic manufacturer and benefits from consumer's demand for cheaper drugs. The company has three main divisions: Branded, Generic and Injectable. Its Branded division manufactures branded generic and licensed drugs to the Middle East and North African markets (MENA). The Generics division is solely focused on the US market for oral drugs, which are manufactured in the lower cost MENA region. The Injectable division manufactures and sells generic injectable drugs across the US, Europe and MENA regions. The group has a strong pipeline of products seeking FDA approval in areas such as oncology, diabetes and cardiovascular diseases.
GlaxoSmithKline has recently announced that the business will be split in two. One will be a biopharma company focused on an R&D approach to develop therapies related to the immune system, use of genetics and new technologies. The other will be to create a leader in consumer healthcare. The two year separation programme is aimed at delivering greater cost savings, estimated at £0.7bn annually, and allowing each company greater focus in their respective target markets.
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