Healthcare offers a fertile hunting ground for investors with horizons beyond that of most market participants. In the search for companies capable of compounding earnings over long periods the unique secular demand underpinning the sector is a useful tailwind.
Within Cerno clients’ portfolios we own companies in orthopaedics (Zimmer Biomet), pharma & technology (Johnson & Johnson and Waters) and post-operative care (Coloplast). 5 of the 27 stocks within our Global Leaders strategy are bracketed healthcare stocks with many more feeding their products and services into the supply chain. Newer, disruptive technologies are also represented in the Baillie Gifford Global Discovery Fund where healthcare represents 35-40%.
Nevertheless, it is our observation that our investment footprint risks lagging the expanding opportunity set. As we set out in a recent missive, The New Ways, affordability is becoming an increasingly intransigent, and central issue for the effective delivery of healthcare. In the US healthcare spend is a colossal US$3.3tn, expanding at twice the rate of inflation.
Traditional pharma has few tools in its locker to resolve the problem. The answer instead lies in a broad church of business, from medical technology (MedTech), to managed care, to healthcare IT. Technology often lies at the heart of these myriad offerings enabling solutions to come from outside the traditional sphere of companies.
Understanding this dynamic and the holistic nature of the solution is key to generating excess returns, in our view. However, the specific knowledge set and time commitment required are outside our wheelhouse. It has taken some time to locate an appropriate manager however we have now invested in BB Healthcare Trust across client portfolios.
BB Healthcare offers an all-cap, concentrated portfolio of healthcare stocks. Portfolio managers Paul Major and Brett Darke, assisted by Dr Daniel Koller, look for companies solving unmet needs, reducing resource intensity per patient and delivering improved patient outcomes. The fund has a wide knowledge base to leverage including the deep expertise of Dr Koller’s biotech team.