The case for healthcare investing, according to Fidelity’s Tom Stevenson
However, the same positive trends are helping the wider sector surge from strength to strength in the 21st century; a growing world population, ever-rising life expectancies and increasing levels of global wealth (aided by burgeoning middle classes in emerging markets) all combine to create a fecund environment for the expansion of healthcare – and advances in medical technology and pharmaceuticals help further facilitate this. Considered in sum, there has perhaps never been a better time to invest in healthcare.
“One of the most attractive things about the healthcare sector is that, if you pick your investments smartly, you can fill your portfolio with shares that offer both growth and defensive capabilities,” notes Tom Stevenson of Fidelity. Healthcare shares rise during boom periods, but can ably weather economic downturns as healthcare spending is rarely discretionary.
For those who wish to invest in the healthcare market, Tom’s favoured vehicles are trusts – and he has some recommendations.
“Liontrust Asset Management’s Macro Equity Income Fund offers a way to access the rewards of the wider healthcare market via a really well balanced, strongly diversified portfolio,” he notes. The fund primarily focuses on UK shares, and invests across ten different sectors; healthcare is the fund’s second largest investment area at 20 per cent of the overall holding. “Among its investments are the pharma titans GlaxoSmithKline and AstraZeneca – both feature in the Fund’s top 10 holdings, at 4.8 per cent and 4.2 per cent of the fund overall.”
Tom also recommends Fidelity Global Demographics (FDG). “FDG was established to capitalise on the opportunities arising from global demographic shifts, such as population growth, ageing populations and the emergence of middle classes in developing markets,” he explains, “so it should come as no surprise, then, that healthcare accounts for almost half of the fund’s net assets.”
Unlike Liontrust’s Fund, FDG is international in outlook; US shares dominate at 48.6 per cent of the portfolio, with UK shares a mere 5 per cent – the rest is comprised of key overseas markets. Healthcare investments run the gamut of the sector, and include medical device and prosthetics manufacturers, healthcare providers and pharma giants. “As of the end of last year, nine of the top 10 holdings in the fund were healthcare,” Tom reveals, “but there’s enough variety to ensure the portfolio is diverse overall.”
Neil Woodford’s Equity Income Fund (WEIF) may also be of interest. “Around a third of WEIF holdings are in the healthcare sector,” Tom notes. “On top of major pharma firms such as Roche, and medical equipment manufacturers such as Smith & Nephew, investors also gain exposure to smaller, fringe shares – the potential healthcare giants of tomorrow.” Woodford firmly believes that small investments in early-stage businesses can add meaningfully to the long-term performance of a fund – and this philosophy will also inform his new Patient Capital Trust (PCT). “The PCT’s first investment was in Sphere Medical Holdings, which could be an indicator of things to come,” Tom concludes.