Our Key Investment Themes for 2019

By: Gordon Smith

Here, our Senior Fund Analyst, Gordon Smith, discusses Healthcare and why it is a key investment theme for us throughout 2019.

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The long-term drivers to the Healthcare industry remain very much in place. Rising life expectancy and an ageing demographic continue to provide long-term support to the sector, and taking into account the less economically sensitive nature of the Healthcare industry, we believe it can provide a useful diversifier within portfolios particularly at this point in the cycle.

As highlighted last year, it is however clear that there are some major structural changes taking place across the industry. The widely accepted view is that the growth in government spending within the industry is unsustainable, and as such is providing a catalyst for much needed improvements to be made when it comes to the efficiency of existing healthcare systems.

All around the world, healthcare systems are being asked to deliver better healthcare, to more people, and for less money. In an attempt to tackle this, increasingly the industry has seen a shift towards recognising and rewarding the value delivered by a therapy.

An outcomes – rather than volume based pricing model – creates a number of opportunities, as well as notable threats to the sector. It has a number of important implications, not least that the large incumbent pharmaceutical companies within the industry may face significant and permanent changes in their core businesses. We believe that the beneficiaries of this disruption will largely come from unexpected, data driven and technology enabled companies within the industry.

Further disruption is stemming from key developments in healthcare innovation, which is enabling a more personalized approach to the delivery of care. For example, significant advances in gene sequencing has enabled what is often titled, the ‘third wave’ of treatments utilising cell and gene therapies to address disease, rather than drugs or surgery. After several decades of development, this area of research looks set to have a transformational impact on the industry and has shown that it is ready to be delivered to patients, with the first gene therapies recently approved in the US.

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