How To Benefit From a Healthcare Revolution – For investors, 2021 was not an easy year. Rarely do you remember a time in which so many macro-political uncertainties have come together? The stock market seems like a wounded animal that is shifting from one factor to another (value, growth, momentum, etc.). The FTSE 100 is up approximately 7 percent over the current year at the time of writing. It is up a little over 8% in dollars, but it fell into negative territory in August before rebounding again. It was reflected by the pounds. The market is said to be both cheap or costly to investors, and that recession is both forthcoming and unlikely. Where can you find a stable perspective in the midst of so much apparent confusion? Surely somewhere must be able to provide reasonable valuation, growth, and yield?
Few things are certain in life, but axioms hold firmly: in our world, there are more people, and they grow older, on average. The bulk of the health resources are used up by the elderly because the price we pay is a higher chronic disease burden later in life. Health spending is higher than GDP in developing markets since the emerging middle-classes have time and resources to keep themselves healthy. All these factors are combined with unstoppable growth in demand. In short, health care is the centuries-long development of our age and is likely to accelerate as medical and new technologies open up more opportunities to alleviate the burden of human suffering.
It’s a catch, as always. The health systems of the developed world are not designed to handle this elderly, morbid population, and health care has increased as a percentage of GDP, which contributes to our marginal productivity gains. If the system is not reformed, this trend will worsen.
It is mere political expediency to find the NHS simply needing more money. More money does not magic trained doctors and healthcare workers or tame the animal of the above inflationary trend in health care costs. One need not give up on this destiny. However – countless new techniques have shown credibly that the paradigm of health care has changed, with both improved care and lower costs. The investor could benefit from this profound revolution too. It is not only society that benefits.
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At the end of 2016, our fund, the BB Healthcare Trust, was launched to benefit from this necessary and unavoidable revolution. We manage an operationally-focused portfolio of exposures to key areas of fundamental change. Those changes will probably occur first in the US but worldwide. The spoils of victory will, however, be accrued by companies that have built up their portfolios in recent decades with incremental innovations in medicines and medical devices, so our fund remains unrestrained and is able to invest in relevant adjacent areas such as technology and consumer products. We are focused on total return but offer a dividend out of the capital because many of the companies will not, if anything, pay dividends for decades. In a world where yields are difficult to find (particularly ethical or sustainable income – how much of the FTSE yield is from extractors and tobacco?), we can also provide a competitive payout.
The companies and themes that guide the fund include electronic triages (e.g., Teladoc), robotic Chirurgie (e.g., Intuitive Surgical), genetic testing and molecular diagnostics, as well as a host of new treatments and products (e.g., Illumina). The NHS knows what the future can offer, and politicians should leave well alone and allow health to “heal themselves.” Healthcare has been a controversial political football for many years.