Is med-tech the future of the healthcare sector?
David Coombs, manager of Rathbone Strategic Growth Portfolio, talks to us about the future of the...
In a world of constant change, stability can be a comforting thing – especially when it comes to your finances. Some people, for example, are simply not emotionally equipped to watch their investments go up and down in value when stock markets are volatile. And this can lead them either towards more defensive areas of the stock market, or more defensive funds.
Traditionally, defensive stocks and sectors have been those that are ‘non-cyclical’ – in other words, they are not dependent on the health of the economy to do well. Examples would be utility companies or consumer staples. However, 2020 and its series of lockdowns saw some of these companies struggle too, while certain fast-growing businesses – like those in the technology space – were far more resilient. And this change has led investors to re-evaluate what constitutes a defensive stock today.
“Only buy something that you’d be perfectly happy to hold if the market shut down for ten years.” — Warren Buffett
As every downturn is different, relying on certain sectors to provide defensive characteristics may not be ideal. So what broad themes could defensive investors turn to instead? Perhaps some clues lie in our changing behaviour.
Research from Capital Group shows that millennials check their phone 150 times per day and spend 53 hours of their time online every week, for example. Consequently, demand for services such as digital streaming and video gaming could end up displaying similar traits to more traditional defensive companies like utilities, as user adoption grows. If I’m anything to go by, this could well be true. Just like I’m not going to stop using my water in hard times, I’m not going to stop using my phone or posting to social media, either.
And the same is true in other parts of the world. On a recent episode of Investing on the go podcast we talked to Mithran Sudhir from Goldman Sachs India Equity Portfolio. Mithran told us about the millennial population in India driving consumption: “the average Indian on their mobile phone consumes three and a half times as much data as the average Brit,” he said.
Healthcare companies – or more specifically pharmaceuticals and medical device makers – have historically been considered defensive stocks too. This is because people still get sick in an economic turn down and need certain services. But the pandemic changed even this. Things like elective surgeries got pushed back, for example. So another defensive option going forward, according to Capital Group, is alternative healthcare.
Rosemary Banyard manager of VT Downing Unique Opportunities, told us about holding Ergomed, for example, in a recent interview. Ergomed is an AiM-listed company which specialises in trials and safety trials on cancer drugs, as well as boosting a strong network in the Middle East and Africa for drug trials.
David Coombs, manager of Rathbone Strategic Growth Portfolio, also believes med tech is one of the best opportunities given the current climate. He says it is an important part of the strategy and will increasingly become so throughout the next 5-10 years.