Adults 65 and older are the fastest-growing age cohort in the US and Canada. By 2050, one in six adults in North America will be 65 years old or older. An ageing population needs healthcare and needs it as a necessity, not a luxury. This is partly the reason that healthcare was one of the few sectors that thrived during the financial crisis of 2008–2009.
The healthcare industry has long been a reliable area for investors planning a defensive investment strategy. Because of the constant demand for healthcare services, healthcare stocks tend to remain stable during the various phases of the business cycle. These stocks can also perform better than other sectors in the late stages and contraction periods of a growth cycle.
During the last decade, however, even as stocks generally performed well during the 2010s, healthcare stocks outperformed the S&P 500 index in total return every year except one. So, it may be time for investors to consider healthcare investment as a growth component of a broad, diversified portfolio, and not just as a defensive strategy.
What is the Healthcare Industry?
More than just hospitals and doctor’s offices, the healthcare sector is comprised of numerous different industries, including:
- genomics and biotechnology
- health maintenance organizations (HMOs)
- health insurance companies
- medical diagnostics and testing equipment
- and innovative new medical technologies, like surgical robotics
Each of these industries has its unique dynamics, with performance-driven by a variety of factors, both positive and negative. Investors can invest in the sector as a whole, in its constituent industries, or both.
The State of Global Healthcare
The global healthcare sector remains robust in both scale and outlook.
Worldwide, healthcare spending is projected to reach USD $10.059 trillion by 2022. The global pharmaceutical industry alone is expected to grow between 2.5 percent and 3.5 percent in 2020, driven by the growing market for oncology therapy. Growth of the middle class continues faster than ever in emerging markets, meaning that around the world more people have the ability to pay for healthcare.
With the Conservative victory in the recent UK election, a conclusion to Brexit appears near. With Brexit comes the promise of new bilateral trade agreements between the UK and other nations, including the United States. It is believed that any such deal between the UK and the US would allow for more participation in Britain’s National Health Service by US-based healthcare companies, holding out the potential for big profits in this new global healthcare market.
Trends Affecting Healthcare
Several trends are impacting the healthcare sector as a whole, and represent positives for potential investors. These include:
- increasing life expectancy around the globe
- a growing, ageing population of baby boomers
- people living longer with chronic diseases
- the continuing obesity and diabetes epidemics
- advances in innovative, but costly, health-related technologies
- the global reach of disease
Likewise, there are potential disruptors to the traditional healthcare sector. When considering an investment strategy, prospective investors should consider:
- the emergence of personalized medicine
- increased availability of exponential technologies (e.g., artificial intelligence, nanotechnology, etc.)
- the entry of disruptive and non-traditional competitors
- demand for expanded care delivery sites
- rising labour costs
- revamped payment and public funding models
Other, broader trends may also have an impact on the sector. One such example is the rise of ‘wellness’ as a schema for managing population health. A wellness focus in healthcare emphasizes well-being, prevention, and early intervention to help avoid illness or injury. This wellness model aims at overall cost reductions through the prevention of disease and injury, and so will have an impact on the profitability of some sectors of the healthcare industry should it become widespread. However, the rise of wellness will mean opportunities in areas like private wellness centers and clinics, as well as in more preventative areas of medicine and healthcare.
Investing in Healthcare Stocks vs. Healthcare ETF
Investing in healthcare has the potential for substantial returns, and as we enter the late stage of the business cycle healthcare investment is a good defensive strategy for a recessionary environment.
But what’s the best way to invest? Should you choose stocks, or another vehicle like healthcare mutual funds or a healthcare ETFs?
Individual stocks are the most familiar way to invest, but given the scope of the sector and the diversity of industries within it, it can be challenging for the average investor to research every company they might invest in.
One way to simplify your investing is with an investment vehicle. Healthcare mutual funds or a healthcare ETF offer a diversified portfolio of holdings in healthcare stocks, reducing the risks associated with individual stocks. They can add robustness to a portfolio, ensuring that while your risk is diversified, you are still invested in blue-chip names that you are familiar with, and with which you feel comfortable.
Evolve’s LIFE ETF
The Evolve Global Healthcare Enhanced Yield Fund (LIFE ETF) provides investors with exposure to twenty global blue-chip healthcare companies with a covered call strategy that is actively managed to provide increased yield potential while helping mitigate risk. The LIFE ETF is available in hedged, unhedged and USD classes. LIFE.B (unhedged) was Canada’s top-performing healthcare ETF in 2018*. It was also the top-performing healthcare ETF over the 2-year period in 2019.**
Managed by an established team of industry veterans with a proven track record of success, Evolve ETFs create investment products that make a difference. For more information, please visit www.evolveetfs.com or download our one-pager about the LIFE ETF.
*Based on the Bloomberg Finance L.P. classification of 11 healthcare ETFs in Canada, as at December 31, 2018.
**Based on the Bloomberg Finance L.P. classification of 15 healthcare ETFs in Canada, as at December 31, 2019.
Commissions, management fees and expenses all may be associated with exchange traded mutual funds (ETFs). Please read the prospectus before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. There are risks involved with investing in ETFs. Please read the prospectus for a complete description of risks relevant to the ETF. Investors may incur customary brokerage commissions in buying or selling ETF units.