Seven fund managers looking for ‘healthy’ profits, February 2021

Over the past 12 months, the global population has been focused on the healthcare sector, as nations battled the coronavirus and the search for a vaccine became the world’s number one priority.

While short-comings and under-investment in healthcare services around the world have been laid bare, global cooperation and the amazing things that can be achieved by scientists and healthcare practitioners, have also been brought to light – along with the investment opportunities.

Here, we take a look at seven fund managers looking for ‘healthy’ profits in their portfolios:

1. Schroder Global Healthcare fund

Manager John Bowler says that mid-long term drivers of healthcare remain unchanged. “There is accelerating demand for healthcare services from demographics, particularly as the leading edge of the baby-boomers reach 75 years of age and start requiring more complex procedures,” he said. “Governments globally face budget pressures with the ever growing demand for health services and this makes the need for better, more efficient health services a necessity and not an option. The new insights in the biology of diseases and new treatment modalities is also driving a tremendous wave of new medicines that offer a step change in patient outcomes. The COVID lockdown period also shone a light on the value of telehealth and digital health services. This trend is still relatively early in its adoption and therefore remains a source of mid- long term growth.”

2. AXA Framlington Health fund

“Home-health has been a big winner coming out of COVID – with the thesis of moving medical care out of the acute care setting like a hospital and into the home,” commented manager Dani Saurymper. “Related to this is Healthcare IT and the idea of remote patient monitoring either in the home or on the ward to enable more efficient delivery of care. Animal Health is also likely to remain well supported – particularly the companion animal segment - where we have seen a significant increase in puppy and kitten adoptions during COVID. Two other areas where we’re searching for good opportunities in a post-COVID environment are vision care (given the significant increase in screen time adults and children are having to endure due to COVID) and mental health, which could see a spike in incidence coming out of lockdowns.”

3. TB Amati UK Smaller Companies fund

Away from the sector-specific funds, this UK small companies fund currently has 20.7%* in the sector. “We are especially excited about data in healthcare and gene-therapies,” commented manager Dr Paul Jourdan. “By looking at data, it is possible to shorten treatment development times, increase the probability of getting a drug to market, generate better outcomes for patients and reduce the cost of treating patients.

“One of the fund’s holdings RenalytixAI, for example, developed KidneyIntelX; a diagnostic test combined with an artificial intelligence algorithm that predicts progression to End Stage Renal Disease (kidney failure) for patients with type two diabetes. Why is this important? End stage renal disease leads to dialysis, which costs $80,000 per year per patient and, according to some figures there are more than 100,000 new patients per year starting dialysis in the US. Being able to identify patients early, well before they progress to dialysis, will lead to better outcomes for patients through disease management and reduce the burden on the health system. The way KidneyIntelX is delivered is also novel, being deployed top down through the IT network of a healthcare system straight into the doctor’s office.”

4. T. Rowe Price European Smaller Companies Equity fund

This fund also has 18.9%^ invested in Healthcare. Manager Ben Griffiths said recently, “Our biggest holding is Shop Apotheke, a German online pharmacy. The German market is still very much owned by single pharmacists. The pandemic has obviously helped accelerate adoption of online services and the German government has now also mandated electronic prescriptions. It’s exciting because it’s still such a young market - there is currently just 1% penetration for online prescriptions in Germany – it’s 30% in the US, so the potential is huge.”

5. Morgan Stanley Global Brands

Marcus Watson, executive director on this fund, says that having a diversified business is a key attribute he and his colleagues look for in their healthcare investments. “Several of the companies we own, from leading life sciences company Thermo Fisher to healthcare conglomerates Abbott Laboratories and Danaher, have had the scale and breadth of capabilities to develop tests and help companies with COVID vaccine development,” he said. “Indeed, Danaher has been involved in approximately 400 projects related to COVID, including all those that have been approved. One of the less recognised benefits of diversification is the scope for further investment that it enables. If companies are able to continue reinvesting elsewhere in their businesses, they will be well positioned for even higher growth rates in the future.” The fund currently has a 20.8%* to the sector.

6. EdenTree Responsible & Sustainable UK Equity

Healthcare could also be an attractive option for ESG-minded investors. Co-manager of this fund, Ketan Patel, commented: “Healthcare remains a highly diverse sector, offering ESG investors access to a broad range of businesses operating in animal health, life sciences, diagnostics, medical technology, R&D and biotech to name a few. We have a 19.9%^ weighting to the sector in the fund.

“At a company level, both the UK giants – AstraZeneca and GlaxoSmithKline are well placed to deliver for long-term investors, with the former delivering a not-for profit vaccine in the fight against the pandemic. GlaxoSmithKline is due to split into two entities, with the spin out of the consumer division, leaving a business that is solely focused on R&D. The company has been ranked the highest in the Access to Medicine index with its leadership in supporting healthcare infrastructure in the developing world. Further down the market cap, companies like Clinigen and Bioventix are delivering vital solutions to the healthcare system not only in the UK, but globally. The UK’s leadership in healthcare has been reflected positively in capital markets and ESG investors are well placed to take advantage of this growing sector, which is well supported by long-term tailwinds; an ageing and ailing population that is rapidly growing.”

7. Stewart Investors Asia Pacific Leaders Sustainability

Pablo Berrutti, senior investment specialist at Stewart Investors Sustainable Funds Group, commented, “We only invest in companies we believe are making a positive contribution to sustainable development, but this alone is not enough, quality is also essential. When it comes to healthcare, the quality of the franchise will include whether the company is making essential health services more accessible, affordable and whether they are filling significantly unmet demand.”

The fund currently has 17.1%* allocated to the sector. “We currently hold companies in medical devices, diagnostics and medicines,” Berrutti continued. “One example of this is Hoya’s lens business. With 4.6bn people globally requiring vision correction and almost 60% not having access, there is a massive unmet need, which Hoya’s products are well placed to provide. Vision correction is also one of the most important interventions which can be made to support quality education. Another example is Dr Lal Pathlabs, an Indian pathology provider that operates in 22 countries and that performs more than 100,000 diagnostic tests per day. The company’s services offer early detection and intervention for illnesses which otherwise might result in costly hospitalisations.”

*Source: fund factsheet, 31 January 2021
^Source: fund fact sheet, 31 December 2021

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. The views expressed are those of the fund managers and do not constitute financial advice. Reference to individual securities are for illustration purposes only and not a recommendation to buy or sell.

Published on 22/02/2021