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The heroic nature of health stocks in 2020
Putting money into health stocks is not only an investment in financial return, it’s also an investment into social impact, a portfolio manager has said.
The heroic nature of health stocks in 2020
Putting money into health stocks is not only an investment in financial return, it’s also an investment into social impact, a portfolio manager has said.
In a recent opinion piece for nestegg’s sister platform InvestorDaily, senior portfolio manager for American Century Investments Michael Li said health stocks have been leading the broader market as well as having helped the S&P 500 Index end July in positive territory year-to-date.
In social impact terms, he explained how companies grounded in the provision of health and healthcare may provide new and innovative treatments for diseases, or enable access to medicines and healthcare services to developed and emerging market.
In the context of the current COVID-ravaged world, Mr Li said, “The human cost of the coronavirus pandemic underscores the need for further scientific discovery and also highlights the agility of some healthcare companies to address the crises.”
He cited a World Health Organization report that noted more than 140 potential vaccines were in development as of late July, “with five having entered later-stage, large-scale clinical trials to determine safety and efficacy”.
But it’s not just limited to infectious disease; the portfolio manager has also flagged a rising demand for healthcare services the world over, especially now that 600 million people worldwide are aged 65 and older.
Mr Li said an ageing population will contribute significant stress on healthcare systems, “so investment in infrastructure and capacity is required, as well as innovations in treatment and drugs”.
“In addition, increasing wealth levels, in China and India in particular, underscore the global drive for greater access to healthcare,” he added.
Even with much of the sector’s focus on work towards treatment and prevention of COVID-19, Mr Li said “the broader fundamental outlook for the sector remains relatively strong”.
He acknowledged that stocks within the healthcare sector have historically outperformed the market by almost 2 per cent on average, especially during periods when macro uncertainty is prevalent.
Not only does the portfolio manager consider the healthcare sector to currently be trading at a discount to both the broader market and its usual valuation, which is “quite attractive” as a proposition, he added that many investors “are starting to recognise the value of innovation and agility presented by many healthcare companies”.
“When innovation delivers new products and services, it tends to outperform, and the current environment is especially conducive to innovation,” Mr Li said.
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