Different ways to invest in healthcare

Joss Murphy 06/07/2023 in Equities, Specialist investing

5 July 2023 marked 75 years of the National Health Service (NHS) in the UK. Founded in 1948, the NHS was the first universal health system to be available to all, free at the point of delivery.

Over the past 75 years the service has evolved and pioneered many new treatments. From Europe’s first liver transplant in 1968, to the world’s first CT scan on a patient in 1971, and the world’s first test-tube baby born in 1978, innovation has been rife. In more recent times, we’ve seen the world’s first rapid whole genome sequencing service for seriously ill babies and children developed. In short, the NHS has been integral to huge medical advances around the globe.

As the population has grown and aged, however, there is no doubt that the service has become strained. Using IT and data more effectively, getting better at preventing illness, not just treating it, and speeding up the introduction of 21st century genomics-based medicine, will be key for its future, as well as investment in its staff and infrastructure.

To celebrate the milestone, we take a look at the funds investing in healthcare around the world, giving examples of the companies they prefer.

What is the healthcare sector?

First, let’s take a closer look at the healthcare industry. Healthcare is made up of many different sub-sectors including the likes of pharmaceuticals, biotechnology, devices, health insurers and hospitals. And each of the sub-sectors has its own dynamics.

Spend on healthcare is considerable – the sector takes more than 10% of the GDP of most developed countries*. It is also the third largest sector in the MSCI World Index – an index that represents more than 1,500 large and mid-cap stocks across 23 developed markets**.

In the US alone, there are almost 785,000 healthcare companies and it’s the largest employer, with 1 in 8 US citizens working in the sector*. The largest healthcare company in the world is UnitedHealth, which has a market capitalisation of $447bn market cap making it the 13th largest company in the world***.

Which funds invest in the healthcare sector?

Polar Capital Global Healthcare Trust is the obvious starting place. It invests in a healthcare stocks from around the globe, predominantly from four sub-sectors: pharmaceuticals, biotechnology, medical technology, and healthcare services. In their most recent update, the fund’s managers said that 2023 has so far been challenging for the healthcare sector, as a lot of investor focus has been on the technology sector.

Looking ahead, however, they believe there are several reasons to be more optimistic. “First, the fundamentals are in good shape with the consumption of products and utilisation of services accelerating,” they said. “Second, valuations are supportive, even more so if a number of healthcare subsectors can deliver revenues and earnings upgrades. Finally, the macro backdrop feels supportive given the prospect that financial conditions could tighten, and economic activity could slow.”

AXA Framlington Biotech is another sector-specific option. The fund looks to tap into what is now one of the fastest growing subsets of the healthcare sector and targets long-term capital growth by investing across businesses of all sizes, principally in the biotechnology, genomic and medical research industries.

But the opportunities in the healthcare industry are wide-ranging and a number of funds in other areas or with wider remits are also investing in the sector. For example, TIME: Commercial Long Income has 3.8% of the fund’s assets invested in a St Martin Care property, which provides care and support to older people with complex and enduring health needs, including dementia****.

Artemis Positive Future is another example. The fund has 38.5% of assets invested in companies associated with the Sustainable Development Goal 3: Good health and well-being. This includes top holding Cochlear a world leader in hearing device implants****.

Almost 50% of Baillie Gifford Global Discovery’s assets are also in this sector****. The largest holding is Alnylam Pharmaceuticals, an American biopharmaceutical company focused on the discovery, development, and commercialization of RNA interference therapeutics for genetically defined diseases, while the second largest is STARR Surgical, which designs, develops, and manufactures implantable lenses for the eye.

The European Opportunities Trust meanwhile, has 34.5% allocation to the sector, including an 11.5% weighting to Novo Nordisk, which has enjoyed success in recent years with its diabetes and obesity franchises^. IN a recent update, manager Alexander Darwall said that during the American Diabetes Association (ADA) annual conference in June, the news from Novo Nordisk was encouraging, but that arguably, the news from competitors was even more encouraging.

“Various competitors presented data which shows that competition will intensify in due course,” he said. “Nevertheless, we remain very confident that the company has a strong position and will continue to be a significant winner in both its diabetes and obesity franchises. The manager did, however, trim the holding in the company last month.

“Our confidence in Novo Nordisk is undiminished,” he said. “However, our recognition that competitors’ assets will become more relevant and our desire to reduce the Company’s gearing combined to prompt the sale.”

*Source: PolicyAdvice.net, statistics for 2023
**Source: MSCI June 2023
***Source: companiesmarketcap.com, 6 July 2023
****Source: fund factsheet, 31 May 2023
^Source: fund factsheet, 30 June 2023

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