Healthcare stocks to benefit from long-term spending boost: VanEck
Global healthcare has been performing well through the COVID-19 pandemic and could continue performing strongly over the longer term, supported by a huge boost in healthcare spending across developing and developed economies triggered by ageing populations and widespread chronic disease.
Sydney, 16 December 2020 – Global healthcare has been performing well through the COVID-19 pandemic and could continue performing strongly over the longer term, supported by a huge boost in healthcare spending across developing and developed economies triggered by ageing populations and widespread chronic disease.
Russel Chesler, Head of Investments and Capital Markets, said several factors are boosting demand for healthcare products and services, which will support valuations in the sector for many years to come. The healthcare sector includes pharmaceutical and biotechnology companies and equipment providers.
“The healthcare sector is benefitting from several longer term trends. The combination of global population growth and ageing demographics is one of the most important. Except for a few large ‘young’ countries such as India and Indonesia, ageing demographics is a global phenomenon. The increasing prevalence of chronic diseases will also continue to drive up the demand for healthcare.
“In addition, healthcare expenditures in developing economies are expected to rise, as these nations strive to provide better healthcare for their citizens,” said Chesler.
The outcome of the US election has also been positive for healthcare stocks, with the Democrats unlikely to control the US Senate, leaving the status quo intact for pharmaceutical and biotechnology companies.
“Given the diminished risk on US drug pricing reforms following the US election and a lower probability of tax increases, medicine providers have received a boost. Pharmaceuticals suppliers, which prior to the US election had been underperforming due to Joe Biden’s Medicare drug pricing proposal, are now benefitting from greater certainty given the proposal’s likely defeat in the US Senate. Separately, biotech companies, which in the past had recovered most quickly from pre-election underperformance, could outperform again,” said Chesler.
“Overall, health sector valuations are attractive compared to the broader US stock market, which is dominated by more expensive technology stocks. Yet health stocks, like technology, offer investors the potential for high growth. We could also see a spike in merger and acquisitions activity given the sector is awash with money, potentially handing a premium to shareholders.”
“In early December, the healthcare sector has been trading at a forward price-earnings discount to the S&P 500 of around 32%, highlighting the value that the sector offers,” said Chesler.
“On top of this, demand for COVID-19 vaccines will be huge next year as they are deployed, and companies developing treatments including Pfizer, AstraZenaca and Johnson & Johnson will directly benefit from that huge global demand.”
Global healthcare expenditure is important to the global economy, accounting for around 10% of the world’s GDP, or US$11 trillion, as at 2018. With global GDP projected to grow to US$137 trillion by 2030, and healthcare expenditures forecast to remain at 10% of GDP, this translates into over US$13 trillion in healthcare spending each year by the decade’s end.
“An allocation to global healthcare is important to get a diversified exposure to different healthcare subsectors and companies. But investing in health care is easier said than done. There are many complexities due to the diversity of the industry, much of which is located offshore, and governed by different legislative frameworks.”
The VanEck Vectors Global Healthcare Leaders ETF (ASX: HLTH) has changed that. A smart beta ETF, it offers targeted exposure to the health sector. HLTH tracks the MarketGrader Developed Markets (ex-Australia) Health Care Index, which targets 50 fundamentally sound companies with the best growth at a reasonable price (GARP) attributes, being the best drivers of long-term capital appreciation.
“The resulting portfolio includes global leaders such as Johnson & Johnson, Pfizer, Lilly and Roche. Over the long term, the smart beta HLTH Index demonstrates outperformance relative to a market-capitalisation based approach. HLTH holds other notable companies such as Australia’s ResMed and Amgen, one of the world’s leading biotechnology companies,” said Chesler.
VanEck is one of the world's largest issuers of ETFs (Exchange Traded Funds), managing in excess of $50 billion globally for individual and institutional investors. Founded in New York in 1955, VanEck is a pioneer in international investing and in gold funds, launching the first gold equities fund and the first gold ETF in the US.
In Australia, VanEck is the fastest growing ETF provider in the country and a leader in 'smart beta' investment strategies. We have 25 exchange traded funds on ASX that focus on delivering superior performance through beyond-the-usual approaches and providing access to asset classes typically unavailable to Australian investors.
Issued by VanEck Investments Limited ACN 146 596 116 AFSL 416755 (‘VanEck’). This is general advice only, not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Read the PDS and speak with a financial adviser to determine if the fund is appropriate for your circumstances. The PDS is available at www.vaneck.com.au. An investment in HLTH carries risks associated with: financial markets generally, individual company management, industry sectors, ASX trading time differences, foreign currency, country or sector concentration, political, regulatory and tax risks, fund operations and tracking an index. See the PDS for details. No member of the VanEck group of companies guarantees the repayment of capital, the payment of income, performance, or any particular rate of return from any fund.
"MARKETGRADER" and “MARKETGRADER DEVELOPED MARKETS (EX-AUSTRALIA) HEALTH CARE INDEX” are trademarks of MarketGrader.com Corp. and have been licensed for use for certain purposes by VanEck. HLTH is based on the MARKETGRADER DEVELOPED MARKETS (EX-AUSTRALIA) HEALTH CARE INDEX, but is not sponsored, endorsed, sold or promoted by MarketGrader, and MarketGrader makes no representation regarding the advisability of investing in HLTH.
1The Organisation for Economic Co-operation and Development (OECD), Health at a Glance 2019