Healthcare will be best-performing sector over next decade
Investment in the healthcare sector due to the COVID-19 pandemic and an ageing western world demographic will mean the sector will be the best-performing over the next decade, according to SG Hiscock (SGH).
Rory Hunter, SGH portfolio manager of the SGH Medical Technology fund, said the ASX 200 healthcare index was the best-performing index over the previous 10 years and they expected it to be for the next decade too.
“Bringing together ageing western world demographics and the COVID-19 pandemic, what you’re already seeing and will see over the next 10 years is that governments will incentivise innovation in medical technology and biotechnology because it brings down those costs,” Hunter said.
“A huge portion of gross domestic product (GDP) internationally and domestically is spent on healthcare and to realise other social benefits, those costs need to come down.”
The Federal Government had announced a ‘patent box’ which was a 50% corporate tax break for all new participants in the medical technology and biotechnology sector in Australia, which Hunter said would be a driver for innovation in the sector.
“We think the contribution of [the sector] performance will change significantly; CSL is a large portion of that index and makes up about 50% of the total index and a lot of the performance attribution over the last 10 years can be attributed to CSL,” Hunter said.
“Our expectation over the next 10 years is there will be new constituents in the ASX 200 healthcare index as companies move up the market cap spectrum.
“But the performance attribution will be dominated by medical device companies and diagnostic companies, as opposed to CSL.”
The fund invested in mature growth companies (i.e. CSL), developing growth companies, and seed companies (start-ups which were typically involved in drug discovery, clinical trials or disruptive medical technology).
The structure of the fund included 20% allocated towards unlisted investments and Hunted said many of those companies were looking to become listed within a 12-month period.
“We’re offering a diversified portfolio of innovative companies that we feel will make the transition to the ASX 200 [healthcare] index over time and when they make that transition a large portion of their returns have already been made,” Hunter said.
“Those deals are difficult to access if you’re a specialised participant in the market.”
SGH would donate a portion of management fees to Australian medical research, which Hunter said they wanted it to become a “nice virtuous cycle” and one of the key aspects of the fund was the social impact nature of it.
“Once this fund hits that $100 million it will become a key player in the ecosystem when it comes to financing early-stage opportunities,” Hunter said.
The fund was not labelled as an environmental, social and governance (ESG) fund, but SGH had recently up as a signatory of the UN Principles for Responsible Investment.
“We haven’t specifically labelled it an ESG fund but it will have a rigorous ESG process which is in line with our listing process at SGH,” Hunter said.
According to FE Analytics, the ASX 200 healthcare index returned 556% over the last 10 years to 28 July, 2021.
Performance of ASX 200 healthcare index over the last 10 years to 28 July 2021
AUTHOR
Chris Dastoor
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