Investing in healthcare

World Health Day is on Friday 7th April in 2023 – but what’s so special about this date and why should it be of interest to investors?

Here we take a look at the annual event organised by the World Health Organization and discuss the different ways investors can access the healthcare sector.

What is World Health Day?

It commemorates the founding of the World Health Organization (WHO) on 7th April 1948. Every year on this date, the WHO draws attention to a health topic of global concern.

A wide variety of themes have been covered the past half a century, including mental health, climate change, and maternal care. WHO encourages people to take an active part in the day by taking on board the messages associated with the campaign and making a difference in their communities.

Why is it important?

It’s a great opportunity to focus attention on a particular health-related area – and emphasises the importance of improving conditions around the world. The day reveals the actions we can all take to help achieve WHO’s aims, including putting pressure on policymakers around the world to commit the resources required.

The themes are also important for investors because they highlight areas where more money and projects will be focused on over the coming years. Putting money into innovative companies working in these areas, therefore, could achieve the twin goals of improving global health and making lucrative longer-term investments.

What is the topic for World Health Day 2023?

The 2023 theme is ‘Health for All’. This year is particularly noteworthy for being the 75th anniversary of WHO and presents an opportunity to look back on past successes. The key messages of the campaign are that 30% of the global population aren’t able to access essential health services.

In addition, almost two billion people face “catastrophic or impoverishing health spending”, according to WHO, with significant inequalities affecting the most vulnerable. “The right to health is a basic human right,” it has stated. “Everyone must have access to the health services they need when and where they need them without financial hardship.”

Overview of the healthcare sector

Healthcare is an umbrella term covering everything from fast-growing biotech firms to medical equipment manufacturers and pharmaceutical giants. While there’s always been a focus on such businesses, interest in this area has increased rapidly in the wake of the Covid-19 pandemic that swept the globe.

Overall spend in this sector is believed to have hit $12trn in 2022 – up from $8.5trn in 2018, according to the World Economic Forum’s Global Health and Healthcare Strategic Outlook.

“Healthcare investments reached record highs in total funding in 2021 with a surge in venture investment and fundraising,” it stated.

How to invest in healthcare

There are plenty of companies around the world that are involved in helping to achieve WHO’s goal of health for everyone. Many of these businesses are multinational giants that stand to make huge profits from the successful introduction of new treatments.

However, investing in this area can be full of potential dangers. Not every innovative, biotechnology firm will be successful, meaning investors could lose their money.

Stock-picking the best healthcare companies

A better option is opting for an investment fund run by a professional manager who puts together a portfolio of businesses. Greater diversification equals a reduction in the risk being taken.

Many portfolios, especially those with more global remits, will have money in health-related companies working on everything from developing new drugs to producing medical equipment.

For example, UnitedHealth Group, the world’s largest healthcare company*, one of the largest holdings in the T.Rowe Price Global Focused Growth Equity fund**, which has been managed by David Eiswert since 2012. His fund invests in a diversified selection of global companies with the potential for above average and sustainable rates of earnings growth.

AstraZeneca, the Anglo-Swedish pharmaceutical company, which is based in England and listed on the FTSE 100, is a prominent holding in a number of portfolios, including The City of London Investment Trust** and Liontrust Special Situations**.

Novo Nordisk, the Danish pharmaceutical company, which has been in business for 100 years, and specialises in treatments for diabetes, obesity, and rare blood and endocrine diseases is also one of the 10 largest stocks in the BlackRock European Dynamic fund** and a holding in the Comgest Growth Europe ex UK fund. Manager Alistair Wittet, told us more about why the team likes this stock in a recent video interview.

Investing in healthcare infrastructure

Investing in healthcare isn’t just limited to medical devices and drugs, however. There are also opportunities in new technologies that can help reduce costs and improve outcomes for patients, according to Tom Walker, co-manager of the Schroder Digital Infrastructure fund. He says electronic health records will allow more personalised medicines and, as the medical industry collects more data, this will in turn lead to better outcomes for patients. “The digital transformation is only just beginning,” he said. “Every element of the digitisation of the medical industry will place more demand on Digital Infrastructure.”

Likewise, TIME: Commercial Long Income manager Roger Skeldon told us recently that healthcare properties such as care homes, hospitals and GP surgeries are excellent assets with leases often over 50 years. “They give good visibility of income” he said.

Going big on the sector

Some investment funds will have a high weighting to the sector if it fits the themes the managers are concentrating on.

For example, Invesco Global Focus currently has healthcare as the largest sector weighting in the portfolio at almost 30%**. The managers have identified the aging population as one if the fund’s structural trends and is investing in the likes of medical devices, medical technology and the ‘picks and shovels’ businesses that are helping to develop drugs.

Manager John Delano told us more in this podcast interview:

Another fund with a big weighting to healthcare is the Baillie Gifford Global Discovery fund, managed by Douglas Brodie. It has a huge 44% of assets invested in the healthcare sector**. These include four of the 10 largest stock positions: Alnylam Pharmaceuticals, STAAR Surgical, Novocure, and Exact Sciences**.

Funds specialising in healthcare

Of course, there are also funds specialising in healthcare. For example, AXA Framlington Biotech, as its name suggests, focuses on biotechnology, genomic and medical research. Its manager, Linden Thomson, can invest globally, but tends to be biased towards the United States, as this is where most biotechnology companies are based.

Then there’s Polar Capital Global Healthcare Trust. It invests in a healthcare stocks from around the globe. These companies will predominantly come from four sub-sectors: pharmaceuticals, biotechnology, medical technology, and healthcare services.

*Source: companiesmarketcap.com, 5 April 2023
**Source: Fund factsheet, 28 February 2023