The healthcare sector is attractive and its long-term growth prospects are strong.
So finds Jean Hynes, senior vice president and portfolio manager at Wellington Management Company in Boston, Massachusetts. She manages the Renaissance Global Health Care Fund.
The three main reasons to consider investing in the space are:
- Changing demographics. People are getting older across the world, which means they’ll need more healthcare products and services, including pharmaceuticals. Read: Don’t take good health for granted
- A rise in emerging markets. As incomes rise in those regions, so too will the use of healthcare services. Already, more pharmaceutical, biopharmaceutical and medical device sales have been recorded in emerging markets, compared to a decade ago. Currently, emerging markets account for between 20% and 30% of the pharmaceutical industry, and 10% to 15% of the medical devices industry. Read: Don’t run away from emerging markets
- Ongoing innovation. New medical devices and medicines are being developed across the globe.
As well, Hynes says two keys themes define the sector: the first is a growing revolution in science due to research progress that was first made in 2000 when scientists sequenced the human genome—a process that was completed in 2002. Still, “it’s taken [them]…more than a decade to take that raw sequence information and [use it to map] molecular pathways that cause diseases.”
And now, “we’re at the cusp of a much greater understanding of how specific genes and proteins are involved in disease pathology.”
As a result, the healthcare sector’s done well over the past few years. “The good news about the current pharmaceutical cycle is clinical data is perhaps better than would have been expected [at this point],” says Hynes. “So the prospects of being reimbursed and approved around the world are much higher than investors expected one or two years ago.”
Further, the delivery of medicine is changing in the U.S. healthcare market due to the Affordable Care Act introduced four years ago. That Act is a coverage bill but it’s also impacting payment models, notes Hynes, who adds, “The U.S. market [is] changing incentive models for how physicians and hospitals will be paid in the future. That will lead to a lot more transparency and volatility in the sector.”
That’s positive news, she adds. “[It’s] a really good environment for companies that are going to be involved in lowering costs. The benefit from increased transparency will [result in] a lot of opportunities for…healthcare managers to pick [market] winners.”
But be cautious, since there will also be losers. They may include companies that rely on relationships with physicians to sell products.