22nd June 2015
Sam Slator, head of communications, reports back after an update with Polar Capital Healthcare Opportunities co-manager, Dr Dan Mahony.
I first met Dr Dan Mahony, co-manager of Elite Rated Polar Capital Healthcare Opportunities, in April 2013. It was one of the first fund manager interviews I had done since joining Chelsea. Prior to that, I'd worked for asset management companies, where I would be extolling the virtues of funds to potential buyers and journalists. So it was something of a novelty to have the role reversed.
Dr Dan's enthusiasm was quite something. He showed me this graph and explained why he thought the healthcare sector's 'lost decade' was coming to an end.
His main argument was that, pensions aside, healthcare is our biggest problem today. In 1960 the US government spent $30bn on healthcare. In 2010 it spent $2.6 trillion, or 15% of GDP.
That kind of spending is simply not sustainable so we would see a) the consumerisation of healthcare – each of us would become more responsible for managing our own health and we'd start paying for things to help us do this and b) companies that could supply better service or products for less money would be the winners – they would be helping governments find a solution to their spending problems. Couple these points with the introduction of Obamacare, and the advances we were seeing in technology, and the opportunities were many.
I came out of the meeting totally convinced and started spreading the word. I didn't buy the fund though. It took me another 12 months to do that. That's probably why I'm head of communications and not fund research. 'Do as I say, not as I do' springs to mind!
Fast forward two and bit years. I met Dr Dan again today at a presentation in the City. He'd updated his graph and, as you can see, his prediction back in 2013 had come to pass! The lost decade was indeed over.
The question now: has the sector simply come too far? Dr Dan thinks not. When you look at the long-term valuation of the sector, it is still fair value. It is now time to get the stock picking right though.
The investment case for the sector is a familiar one. Healthcare spend in the US is now 17.5% of GDP. In Europe it is 8%-12%. In the UK we spend £110 billion on healthcare, 75% of which is on chronic diseases. It's too much and the system is creaking. We have 20th century infrastructure trying to cope with 21st century problems.
Healthcare consumerism is growing: a vial of flu vaccine in the UK costs about £5. By the time you've booked an appointment, sat in a doctor's waiting room and seen a nurse for the jab, it costs the NHS about £25. In the US, companies like CVS (similar to Boots in the UK) do walk-in flu jabs that cost you $20. Healthcare insurance in the US is really for the big expenses, as you pay the first $4-5,000 yourself (the equivalent of 'excess' on insurance here). A standard doctor's appointment is between $100-200, so you can see why a $20 flu jab is so appealing.
Americans are taking control of their own primary care, and because they are taking care of these things themselves, government healthcare expenditure has started to slow.
Obamacare has seen approximately 25 million of the 40 million people previously without healthcare get some sort of insurance.
And technology that a few years ago was unimaginable is already being used. There is a product called 'Invisalign', which is being used in dentistry for braces. You go to the doctor/dentist, have your teeth scanned, the scan is emailed to California where someone 3D prints your brace and sends it back to you! A couple of weeks later, as your teeth move, you do the same thing again. There are a few regulatory issues around 3D printing in other areas of healthcare, but it will surely be used more and more in the future.
That's just a sample of the examples and arguments Dr Dan used. His enthusiasm is as strong as ever. I certainly won't be switching my investment just yet.
About the fund
Healthcare Opportunities was launched in 2007 and is run by Dr Dan Mahony and Gareth Powell. The aim of the fund is to preserve capital and achieve long-term growth by investing in a globally-diversified portfolio of companies within the healthcare industry. It's benchmark agnostic and has no sector restrictions, which means it tends to be very underweight pharmaceuticals. It typically has 40-45 holdings in companies of all sizes.
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Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sam's views are her own and do not constitute financial advice. The presentation took place on 18th June 2015.