This is an exciting time for the healthcare industry. The industry is experiencing a massive wave of investment, innovation and new entrants, which is unsurprising given the attention brought by the Covid-19 pandemic. This, coupled with the fact that the demand for healthcare services is almost guaranteed to increase in the medium to long term against structural growth trends, has made the sector one to watch.
The Case for Investing in the Health Sector
The health sector remains at the forefront of the pandemic. A number of healthcare companies have developed innovative therapies and vaccines to combat the virus, saving the lives of millions around the world.
While Covid-19 may be in the headlines, investors would do well to familiarize themselves with the broader opportunities in the sector, as it is made up of many moving parts.
According to the Global Industry Classification Standards (GICS), under the umbrella healthcare sector, there are two major industry groups. These two groups of industries can be subdivided into six industries, which consist of: Healthcare Equipment & Supplies, Healthcare Provider & Services, Healthcare Technology, Biotechnology, Life Science Tools & Services, and pharmaceuticals (Figure 1).
Figure 1: The health sector as defined by the GICS
Opportunities exist in these segments, as secular drivers; such as demographic changes resulting from an aging population and increased health expenditure, would mean that demand for health services is expected to increase in the medium to long term.
For example, according to the World Health Organization, by 2030, 1 in 6 people in the world will be aged 60 or over. The share of the elderly population will also increase from 1 billion in 2020 to 1.4 billion in 2030 and will double to reach 2.1 billion in 2050.
This will have a powerful impact on healthcare spending and the growth of the sector from an investment perspective. As a population ages, health care needs increase in parallel, which naturally leads to an increase in global health expenditure (Figure 2). In fact, global healthcare spending is projected to grow by 4.1% year-on-year (YoY) in 2022 and will see one of the fastest growth rates in a decade.
Figure 2: Healthcare spending is expected to rise
Seeing the opportunities in the healthcare sector, in this article we take a closer look at the Manulife Global Healthcare Fund.
What is the Manulife Global Health Care Fund
The Fund aims to provide capital appreciation by investing in a collective investment scheme, with an emphasis on investing in healthcare related companies globally.
The Fund is a feeder fund that will invest at least 95% of the net asset value (“NAV”) of the Fund in the I3 share class of the Manulife Global Fund – Healthcare Fund (Target Fund), and the remaining NAV of the Funds will be in liquid assets.
Manulife Global Health Care Fund Investment Strategy and Process
The Target Fund will invest at least 80% of its net assets in equity and equity-related securities of companies in the health sciences sector*. These companies will derive more than half of their revenues from business activities related to health care or devote more than half of their assets to these activities.
*Companies in health sciences have the same meaning as companies in healthcare and related industries.
Although the Target Fund will invest in accordance with its investment objective and strategy, subject to applicable laws and regulations, the Target Fund is not otherwise subject to any limitation on the portion of its net assets that may be invested in a countries and in issuers. of any market cap. Accordingly, the Target Fund may invest more than 30% of its net assets in issuers located in the United States. The Target Fund’s investments may be denominated in any currency.
The Target Fund Investment Manager studies economic trends to allocate assets among the following broad categories:
• pharmaceuticals and biotechnology
• medical devices and analysis equipment
• health services
Figure 3: Fund organization chart
The Target Fund Investment Manager also uses fundamental financial analysis to identify individual companies of any size that appear most attractive in terms of earnings stability, growth potential and valuation.
The Target Fund uses the MSCI World/Healthcare NR USD Index as its benchmark for performance comparison purposes only and the Target Fund pursues an actively managed investment strategy and may deviate significantly from the benchmark of time to time. Although this deviation may result in a performance that is significantly different from that of the benchmark index, the investment strategy of the Target Fund will tend to invest in a universe of securities similar to that of the constituents of the benchmark index.
Why FSMOne recommends this fund
FSMOne believes that certain companies in the healthcare sector offer the potential for strong long-term outperformance. We continue to deploy our bottom-up fundamental investment process informed by an assessment of emerging scientific and medical trends coupled with our intrinsic valuation analysis.
This process should continue to ensure that our allocation of capital to companies addressing significant unmet medical needs guides portfolio construction with appropriate valuation discipline.
The target fund has shown outstanding performance since 2017 in terms of calendar year return with significant return in 2017, 2019, 2020 and 2021, while limited decline in 2018 and year to date, as indicated below :
|YTD||3 months||6 months||1 year||2 years^||3 years^||5 years^||10 years^||IF ^||IF|
|Manulife Global Health Care Fund||-1.7%||5.8%||4.7%||15.6%||12.2%||12.7%||8.7%||13.8%||10.0%||274.2%|
Fundamentals in specific pockets of the healthcare equipment and supplies and life science tools and services industries remain attractive, although valuations have stretched. Specifically, some established leaders in the Covid-19 diagnostics space offer a unique investment opportunity as we believe the sustainability of these companies is currently undervalued by the market.
Additionally, we expect some businesses to experience disproportionate disruption due to the Covid-19 pandemic and have reduced our exposures accordingly. Within the healthcare providers and services industry, we see value in certain supply chain companies, particularly pharmaceutical wholesalers.
The target fund has delivered a sustainable return with a 10% annualized return since inception (274.2% annualized) and a decent but stable return over the years.
Table 1. Source: Bloomberg Finance LP, iFAST compilation, data as of April 29, 2022. ^Annualized
We expect these companies to see their margins improve as drug inflation accelerates and prescription volumes continue to recover. We increased our positioning with select healthcare insurers based on improved profit profiles associated with the Covid-19-induced reduction in office visits and surgical procedures in the Medicare population.
All documents and contents herein should not be construed as an offer or solicitation for the subscription, purchase or sale of any fund, product or service. Any advice given here is given on a general basis and does not take into account the specific investment objectives of the specific person or group of people. Investors are advised to read and understand the contents of the Prospectus, Product Data Sheet (PHS) and relevant disclosure documents before investing. Prospectuses, PHS and relevant disclosure documents can be obtained from the FSMOne Malaysia website. Investors should compare and consider the fees, charges and costs involved before investing. Investors are advised to understand the risks involved in relation to the products or services and to carry out their own risk assessment and seek professional advice where necessary. The mutual fund’s prospectuses have been registered and filed with the Securities Commission (SC), but this does not imply or indicate that SC has recommended or endorsed the product. Past performance is not indicative of future performance. Opinions expressed herein are subject to change without notice. Certain funds, products or services may not be suitable or available to all investors, and are only made available to sophisticated investors (as defined in the Capital Markets and Services Act). The contents herein have not been reviewed by SC. Please read our full disclaimer on the website.
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