Summary: Healthcare companies have weathered the recent price turbulence relatively well. In this article we take a look at the investment opportunities within this sector.
The coronavirus has now been around the world for two years and we have arrived at the 'o' of omicron. The uncertainty surrounding this variant, which according to experts is spreading 2 to 3 times faster than the delta version, has put stock markets under pressure recently. Apart from the economic impact and the effect on financial markets, the advance of the new mutation has put the health sector under a magnifying glass more than ever before.
Pressure on hospitals is increasing and existing vaccine manufacturers such as Pfizer and Moderna are busy adapting to the new variant. Companies such as Sanofi and GSK – who are collaborating on a corona booster – have achieved positive research results with their vaccine candidate, while the listed company Novavax is awaiting final approval of their vaccine by the European Medicines Agency (EMA) among others. These are all hopeful messages in the fight against the virus.
I have recently received many questions from investors about investment opportunities within the healthcare sector – usually referred to as 'health care' in the investment world. Aside from the corona events and with the global aging population in mind, I would like to help address these questions.
In short: all activities aimed at improving the health of people in a country. Health care includes research to increase knowledge of health, but also the application of this knowledge to improve people's health and to prevent or cure diseases – both physical and psychological.
Scientifically, the fields of biology, chemistry, physics and several social sciences (such as medical sociology and psychology) provide input for the development and improvement of health care. Because health care deals with human life, the sector is also regularly the subject of ethical issues in areas such as euthanasia, genetic engineering and privacy.
A major study by the United Nations (UN) states that the international organization expects the number of people in their sixties to grow steadily from 1 billion in 2017 to approximately 2.1 billion in 2050. The UN also sees the life expectancy of the world population increasing from about 65 years at present, to more than 72 years by 2050. Of course expectations differ per region, but the trend is that of life expectancy increasing worldwide.
An important reason for this trend is the worldwide attention to hygiene (washing hands) by UNICEF, among others. Their efforts in the field of clean drinking water and providing better sanitation contribute to the initiated development of an 'aging population'.
However, for this growing group of elderly people, the need for health care increases later in life, which has challenging consequences. For example, the OECD calculated that health care expenditure as a percentage of the Gross Domestic Product (abbreviated GDP, an explanation can be found here) of all OECD countries together, will increase from 8.8% in 2018 to 10.2% in 2030. In addition to this expected increase, overall GDP is likely to increase as well.
The growing need for care and the associated expenditure on drugs and advanced medical applications offers opportunities for investors. You can of course buy European shares of Roche, GlaxoSmithKline or Sanofi, or American companies such as Merck or Pfizer. However, investing in individual stocks is generally riskier than diversified investing through an investment fund such as the SPDR World Healthcare UCITS ETF or the iShares US Medical Devices UCITS ETF. The first scores an above average 4 stars in the Morningstar sustainability ratings, whilst the second is silver-rated by Morningstar, meaning they expect it to outperform category peers.
What are the main risks? Firstly there is currency risk - the funds are quoted in euros, but contain many foreign companies. Secondly, you run market risk - when financial markets are under pressure, health care stocks will experience that pressure too. In the perspective of investing as a football coach, they are midfielders with attacking impulses.
In a nutshell, these funds are of interest to long-term investors who want to bear equity risk and also want to add nuance to their portfolio with companies active in the health care sector with an above-average focus on sustainability. They are also of interest to those who want to diversify from traditional sectors that appear in many portfolios.
Please remember that investing involves risk, historical performance is not a guarantee of future of returns and your investments may lose value.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
