Ben­e­fit­ing from new health­care trends


STRUC­TURAL CHANGE We con­tinue to see ev­i­dence the health­care in­dus­try has em­barked on a pe­riod of ma­jor struc­tural change. Gov­ern­ments and health in­sur­ers are im­prov­ing the ef­fi­ciency of health­care sys­tems, de­liv­er­ing bet­ter health­care to more peo­ple for less money, thanks to three prin­ci­ple driv­ers: an age­ing pop­u­la­tion, new tech­nol­ogy and eco­nomic pres­sure.

The baby-boomer gen­er­a­tion ex­pects a far health­ier, more ac­tive re­tire­ment than their par­ents be­cause of ad­vances in medicine that are now stan­dard. In­creased longevity also means a sig­nif­i­cant part of health­care ex­pen­di­ture is now de­voted to man­ag­ing long-term chronic con­di­tions such as heart dis­ease, di­a­betes and de­men­tia.

At the same time, re­cent med­i­cal ad­vances have seen the emer­gence of new, ex­pen­sive treat­ments for hith­erto un­treat­able con­di­tions. As a re­sult, health­care spend­ing, on an ab­so­lute ba­sis and as a per­cent­age of GDP, con­tin­ues to rise in most coun­tries driven by in­creas­ing de­mand. TECH­NO­LOG­I­CAL DIS­RUP­TION Tech­nol­ogy is the ma­jor cat­a­lyst for change. Ad­vances in in­for­ma­tion tech­nol­ogy, es­pe­cially data an­a­lyt­ics, are help­ing gov­ern­ments and health in­sur­ers pre­dict health­care needs and value a prod­uct or ser­vice. The way health­care is man­aged, de­liv­ered and paid for is al­ready chang­ing and is a trend we ex­pect to con­tinue over the com­ing decade.

Tech­no­log­i­cal in­no­va­tions we are see­ing across many in­dus­tries – health­care in­cluded – have driven a ma­jor change in con­sumer ex­pec­ta­tions. Com­pa­nies such as Ama­zon, Net­flix, Face­book and Uber have set new stan­dards in the de­liv­ery of prod­ucts and ser­vices. Cus­tomers want ev­ery­thing they do to be seam­less and in real time – Face­book-like in ex­pe­ri­ence, Ama­zon-like in re­li­a­bil­ity. LARGE-CAP GROWTH In­no­va­tion tends to come from smaller com­pa­nies as the in­dus­try dis­rupters, but their val­u­a­tions are look­ing stretched. There is also the uncer­tainty go­ing into 2019 – Brexit, trade wars, ris­ing in­ter­est rates, geopo­lit­i­cal uncer­tainty – which makes a stronger case for in­vest­ing in the de­fen­sive growth char­ac­ter­is­tics of large health­care stocks.

Within a var­ied health­care uni­verse, it is im­por­tant to ac­tively man­age sub-sec­tor ex­po­sures as well as in­di­vid­ual po­si­tions. This year has shown, again, that you can get a large dis­per­sion of re­turns among com­pa­nies in the same sub-sec­tor.

The op­por­tu­nity is to find com­pa­nies and man­age­ment that have dif­fer­en­ti­ated as­sets and who are adapt­ing to a rapidly chang­ing health­care land­scape. Not all large com­pa­nies will be able to drive such change, some will get left be­hind. We are al­ready see­ing some large com­pa­nies adopt a proac­tive strat­egy in try­ing to be the agents of change, mak­ing in­vest­ment de­ci­sions to­day that will help shape the fu­ture of health­care to­mor­row. VAL­U­A­TION More­over, there is a choice of large com­pa­nies with good growth op­por­tu­ni­ties that are at­trac­tively val­ued on a rel­a­tive and ab­so­lute ba­sis. At the same time, with a rel­a­tively low risk pro­file, we be­lieve large caps can de­liver at­trac­tive rates of re­turn in a low-growth world.

This is an evolv­ing process and while the ul­ti­mate goal is to im­prove the ef­fi­ciency of health­care sys­tems, the near-term di­rec­tion of travel and how we get there are crit­i­cal in iden­ti­fy­ing com­pa­nies that are well-po­si­tioned and those that may fall be­hind. We ex­pect the next 18 months to be more sup­port­ive of the larger play­ers in health­care.

Dan Ma­hony, man­ager of the Po­lar Cap­i­tal Health­care Trust, will be speak­ing at the AJ Bell Re­tire­ment Con­fer­ence on 11 De­cem­ber.You can also visit the team at the Po­lar Cap­i­tal stand at the event at the Amer­ica Square Con­fer­ence Cen­tre.

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