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Investing in healthcare: just what the doctor ordered?

9 July 2019

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

The healthcare sector is huge. According to the World Health Organisation’s latest estimates, around $7.2 trillion was spent on healthcare in a year. And it looks set to rise. The number of people aged 80 or over worldwide is estimated to triple by 2050. 650 million adults are obese and 1.9 billion are overweight. 8.5% of all adults are diabetic. Each year there are 17 million new cases of cancer and nearly 10 million new cases of dementia.

The healthcare sector provides drugs and services to prevent, treat and cure the world’s health problems. Companies in this sector include everything from pharmaceuticals to health insurers to care providers. It is an area that is benefiting from innovation too, thanks to advances in technology. Gene therapies may soon repair mutated cells by inserting healthy genes into them. Minimally invasive surgery is being developed. And new drugs are being created that could one day make major diseases such as Alzheimer’s a thing of the past.

What’s the opportunity for investors?

As a vast and growing sector, healthcare could provide investors with some attractive long-term returns, although there are no guarantees. Performance is also less likely to be dependent on the state of the economy than some other sectors. An ill person needs treatment whether the economy is booming or in recession.

That potential hasn’t gone unnoticed. Technology giants Amazon and Google are eager to get a slice of the healthcare pie. Amazon recently bought digital pharmacy Pillpack, and Alphabet (Google) invested $375m in health insurer Oscar Health.

Investing in healthcare isn’t without risk though. The sector’s often at the mercy of changing government regulation. Companies often spend enormous sums on research and development with no guarantee of a successful outcome. And there are often stringent tests before drugs can be approved for distribution. If they fail, a company could ultimately go bust.

How’s the sector performed?

The global healthcare sector has performed well over the long-term. In the 10 years to 30 June 2019 it grew 372.8%, compared with the broader global stock market’s 264.4% growth. Remember past performance doesn’t guarantee or indicate future returns. As with any sector though, there have been shorter periods where the sector has fallen behind, such as in 2010, 2016 and so far in 2019. That’s one reason we think it’s best to take a long term view.

Annual performance of the healthcare sector vs the global stock market

Scroll across to see the full chart.

Past performance is not a guide to the future. Source: Lipper IM to *30/06/2019.

How can I invest in healthcare?

We think investing in healthcare should only be done as part of a diversified portfolio. There are several ways to invest in the sector. Investors could buy shares in healthcare companies or invest in an index tracker or ETF that mirrors the performance of a healthcare index.

We think the best way to invest in the healthcare sector is through a fund or investment trust. Either one run by a healthcare specialist, or a more diversified one that invests in healthcare companies.

This article and the information provided is not advice. If you’re unsure of the suitability of an investment for your circumstances, please seek advice. All investments fall as well as rise in value, so you could get back less than you invest.

Worldwide Healthcare Trust

This investment trust invests in healthcare companies large and small from around the world, although nearly two-thirds are based in the US. The managers like companies with underappreciated products, strong management teams and healthy finances. At least 20% of the portfolio is normally invested in higher-risk smaller companies.

The trust’s managers are supported by a large, specialist team of over 80 investment professionals to find healthcare companies they think have the best potential for long-term growth. The trust’s grown 507.2% over the last 10 years* although that’s not an indication of how it’ll perform in the future.

Investments in emerging markets, ability to invest in derivatives and use of gearing (borrowing to invest) all increase risk. You can find out more about the risks and charges in the trust’s annual report and accounts.

Annual percentage growth
June 14 -
June 15
June 15 -
June 16
June 16 -
June 17
June 17 -
June 18
June 18 -
June 19
Worldwide Healthcare Trust 47.0% -0.4% 33.1% 8.0% 3.1%
FTSE World Health Care 27.6% 14.6% 13.2% 5.1% 14.5%

Past performance is not a guide to the future. Source: Lipper IM *to 30/06/2019.

Worldwide Healthcare Trust Key Information Document

More on this trust, including charges

Unicorn Outstanding British Companies

Chris Hutchinson and Max Ormiston invest in UK companies they think have excellent prospects, whatever industry they’re in. Around 20% of the fund is currently invested in healthcare companies, as the managers have found lots of opportunities in the sector. Current healthcare investments include medical device disinfection company Tristel, veterinary pharmaceuticals producer Dechra and medical equipment maker Smith & Nephew.

The managers invest in companies of all sizes, but Unicorn is a specialist in smaller companies. They’ve got more potential to grow than larger ones but are higher risk. Hutchinson and Ormiston only invest in a small number of companies, so each one can have a big impact on the fund’s performance which can help performance to a greater degree when the companies perform well, but the opposite is also true.

Since the fund launched in December 2006 it’s grown 218.6%*, compared with the FTSE All-Share’s 101.5% growth – although remember that past performance isn’t an indication of future returns. We like the fund’s strong long-term performance and the managers’ experience and skill at picking companies for their growth prospects. That’s why the fund is on the Wealth 50 list of our favourite funds.

Annual percentage growth
June 14 -
June 15
June 15 -
June 16
June 16 -
June 17
June 17 -
June 18
June 18 -
June 19
Unicorn Outstanding British Companies 13.8% 2.8% 13.7% 11.7% -1.0%
FTSE All-Share 2.6% 2.2% 18.1% 9.0% 0.6%

Past performance is not a guide to the future. Source: Lipper IM *to 30/06/2019.

Unicorn Outstanding British Companies Key Investor Information

More on this fund, including charges

AXA Framlington Health

Dani Saurymper invests in healthcare companies from anywhere in the world, although around three-quarters of the fund is invested in North America. More than half the companies are in pharmaceuticals and biotechnology. The manager mostly invests in large healthcare companies, but he also invests in some higher-risk small companies. Investing in a single sector is also riskier than a more diversified approach.

Since Saurymper took over the fund in April 2015, he’s fallen behind the global healthcare benchmark. The fund’s grown 27%* during his tenure, compared with 51% for the FTSE World Health Care index. This doesn’t indicate how the fund or the index will perform in the future.

We’ve struggled to find many specialist funds that’ve been able to consistently beat their benchmark, not only in the healthcare sector. That’s why there aren’t currently any on the Wealth 50 list of our favourite funds.

Annual percentage growth
June 14 -
June 15
June 15 -
June 16
June 16 -
June 17
June 17 -
June 18
June 18 -
June 19
AXA Framlington Health 34.6% 3.8% 14.1% 2.7% 7.8%
FTSE World Health Care 27.6% 14.6% 13.2% 5.1% 14.5%

Past performance is not a guide to the future. Source: Lipper IM *to 30/06/2019.

AXA Framlington Health Key Investor Information

More on this fund, including charges

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
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