What Has Driven Healthcare’s Success? by Carl Brown, The Royce Funds
Few places in the equity market have matched the performance of health-related stocks over the last few years. Portfolio Manager Carl Brown discusses some of the major factors behind its success.
See the video here.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Healthcare has been a great place to be invested for the last several years. You have got the usual tailwinds for the group. For the industry, you have got good demographics, pricing power for the industry.
In addition to that, I will highlight two phenomena that I think have really provided a nice tailwind for the group, the first being the Affordable Care Act.
If you really boil it down to a simplistic form, it was a massive expansion of the healthcare system. We expanded Medicaid eligibility, we enacted an employer and an individual mandate to buy health insurance, and we subsidized health insurance.
All that led to a massive expansion of the population that is under the healthcare insured umbrella. So we saw a good tailwind for utilization over the last several years.
The other major event is just the M&A frenzy that you have seen over the last couple of years in the pharma and biotech space. There has been so much activity, it has really provided a huge tailwind to valuations and a lot of people are excited about the consolidation in that industry.
We are finding opportunities across the healthcare space. Pharma and biotech are still – we are still able to find good, individual investment opportunities despite the run-up that you have had in those areas over the last couple of years. Med devices is an area that we are particularly interested in now.
There are great companies out there that have great financial profiles and the valuations are a lot more reasonable. You haven’t had the same level of M&A activity over the last couple of years in the med-tech space that you have had in pharma and biotech. So we are able to find some really great companies with great products, great returns at very reasonable valuations.
We don’t wake up thinking let’s take a look today and concentrate on biotech or med devices or facilities. We are going to take a broad view and we really look at the opportunities one company at a time and we let those individual opportunities lead us potentially to what sectors have the best opportunities.