Healthcare sector outperforms benchmarks
Blue chip pharma stocks have weighed down the performance of the pharmaceuticals sector but the healthcare sub-sector has outperformed, says Nathalie Flury, manager of the $19.5m JB Health Opportunities Fund, Swiss & Global.
Healthcare is the best performing sector in MSCI World last year, with a performance of 9%. Against the S&P500 benchmark, healthcare has outperformed over five, ten and 20 years. Since 1990, the S&P Health Care TR Index has registered a performance of 10.2%, against the 8.2% of the S&P 500 TR index.
Key drivers of the JB Health Opportunities Fund have been biotech and diagnostics, which have had a particularly strong run since last October, Flury said.
“It is not recognized that healthcare is one of the best performing sectors in the MSCI universe,” she said. The sector comprises a mix of mid-cap pharmaceutical companies, and specialists in the biotech, medtech (medical devices) and diagnostics sectors.
Flury added that healthcare is also an above average performer in terms of share price volatility, thanks to its strong, reliable cash flow generation; large dividend payouts, which provide a growing stream of income; and depressed valuations that do not reflect solid growth prospects.
One of the drivers of this performance has been a surge of mergers and acquisitions activity, for example in the hepatitis C market at the end of last year. Gilead Science paid out $10.8bn for drug developer Pharmasset for its hepatitis C drug; while Roche and Bristol-Myers Squibb bought Anadys and Inhibitex respectively for the same reason.
Other key growth drivers are the growing middle classes in emerging market countries, the increased number of elderly people across the world and the growth opportunities provided by innovation.