Unloved maybe; under-appreciated, almost definitely
For the most part, 2024 was a rewarding one for healthcare investors on an absolute basis, although the sector underperformed the broader market, which favoured more consumer-driven sectors such as information technology and communication services. With sentiment towards healthcare weak, as illustrated by exchange-traded fund outflows, the contrarian setup feels incredibly compelling. Why? The sector continues to design and develop innovative medicines and technologies that are generating attractive commercial rewards, the demand for products and services continues unabated and the industry’s global reach should offer multiple avenues of long-term, durable growth.
In terms of interesting, near-term opportunities, access and affordability, the reimbursement of value-added technologies and a potential recovery in China, all pique interest. The healthcare industry is incredibly innovative; however, innovation without access is not sufficient, so addressing the challenges of access and affordability are of equal importance. The manufacture, approval and launch of safe and effective biosimilars will not only yield material savings and expand access to care, but also could offer durable growth prospects for the leading protagonists. Similarly, with artificial intelligence-enabled technologies, healthcare systems need to become comfortable with the quality of the data outputs and then introduce appropriate levels of reimbursement to drive broad utility.
Emerging markets, especially China which could benefit from economic stimulus, are another area of potential growth and could see a renaissance in the coming months and years as the healthcare system finds the right balance between cost control, compliance and attracting innovative, best-in-class medicines.
In conclusion, while the healthcare sector currently appears to be somewhat out of favour relative to the broader market, it is delivering high levels of innovation and has consistently shown the ability to generate strong revenue and earnings growth, regardless of the economic, political and regulatory environment.
James joined Polar Capital in September 2015 and is a Fund Manager for the Healthcare team. He was appointed co-manager for the Polar Capital Global Healthcare Trust in August 2019.
Prior to joining Polar Capital, James worked in equity sales specialising in global healthcare at Morgan Stanley, RBS and HSBC. James also has equity research experience garnered from his time at UBS, where he worked as an analyst in the European pharmaceutical and biotechnology team. Before moving across to the financial sector, he worked as a consultant for EvaluatePharma.
Gareth Powell, CFA
Gareth joined Polar Capital in 2007 to set up the Healthcare team. Prior to Polar Capital, Gareth worked at Framlington, where he began his career in investment management in 1999. Soon afterwards, he joined the Healthcare Team in 2001 and helped launch the Framlington Biotech Fund, which he managed from 2004 until his departure.
Gareth studied biochemistry at Oxford, during which time he worked at Yamanouchi, a leading Japanese pharmaceutical company (later to become Astellas). As well as this, Gareth worked for the Oxford Business School and various academic laboratories including the Sir William Dunn School of Pathology and the Wolfson Institute for Biomedical Research.