Four questions: Why invest in healthcare now?

Question: How would you describe the healthcare sector?

Andy Acker: When you think about healthcare, it really is quite a diverse sector. And I think it’s important to keep in mind there are some stocks within healthcare that are highly defensive. And these could be large-cap pharmaceutical companies, medtech companies, HMOs. What makes these companies so defensive is that the demand for healthcare is fairly inelastic even during an economic slowdown. When we get sick, we need to go see a doctor.

On the other hand, you have so much innovation happening in the sector. And in fact, it’s like nothing we’ve ever seen before. This could be a record year for new product launches, and that’s really being driven especially by small- and mid-cap biotech companies. This is where two-thirds of the innovation comes from, and the new products that are in development are coming from these small companies that are often not well represented in the large healthcare indices.¹

Question: How do rising costs impact the outlook for the sector?

Dan Lyons: Whenever we’ve seen these innovative therapies that Andy was talking about coming out, we’ve seen healthcare systems around the world figure out ways to pay for them. So, whenever you’re really changing the practice of medicine people are willing to pay for that.

Acker: Let’s think about obesity. Obesity has been a growing, really epidemic, not just in the United States, but around the world. And they cost much more to treat. When we think about heart disease, cancer, diabetes, liver disease, kidney disease – virtually every disease you could get is increased by being substantially overweight.

So now, we have new therapies that for the first time can give levels of weight loss that we’ve never seen before. So, we have therapies that are given once a week injectables, or once-daily orals that are in development, that are reaching 15% to 20% weight loss.

Just very recently, we’ve had data now called the SELECT study that showed for the first time that just losing weight alone is enough to drive an improvement in cardiovascular outcomes. So, we’ve seen a 20% reduction in heart attacks and strokes and cardiovascular death. That means we’re going to have substantial savings by using these drugs.

Question: How can investors reduce their downside risk in the sector?

Lyons: I think, oftentimes, benchmarks don’t adequately capture these great sources of innovation. And that’s what really creates the opportunity for investing in an actively managed fund within the sector. Because healthcare has the widest disparity between the winners and the losers, and if you’re just investing in a benchmark, you’re getting a lot of exposure to all those losers.

Question: What’s an example of healthcare’s growth potential?

Acker: If we think about surgery, robotic surgery, less than 10% of procedures today are done using the aid of a robot. And yet, with a robot you can be more precise than the human hand. You can improve outcomes. You can lower bleeding, lower pain. Basically, better in every way for the patient. And again, these are markets measured in the billions of dollars, still less than 10% penetrated. So, we see growth, not just for the next few years, but really for the next few decades. And that’s what gets us so excited in the healthcare sector.