Weighing Up Covid-19’s Unexpected Benefits To Global Healthcare
In a strange twist of fate, the Covid-19 pandemic is likely to benefit global healthcare in the long-term, writes Iva Madjarova, Head of Investment Consulting at Sygnia Asset Management.
If I’d told you just over a year ago that Pfizer, J&J, AstraZeneca, Moderna or even Sputnik would be household names, chances are you wouldn’t have believed me.
And yet, here we are in mid-2021, with everyone from the all-knowing aunty next door to Insta influencers debating the pros and cons of these brand-name vaccines.
Such is the nature of healthcare innovation: people only take note when there’s a crisis. But the fact is, crisis or not, every single day scientists, researchers and healthcare professionals across the globe are working on improving healthcare.
In this context the Covid-19 pandemic may, ironically, be good for the future of global healthcare. This is because it has, quite literally, forced everyone to stop and consider the importance of equal access to healthcare, treatments, cures and preventions.
Importantly for investors, the socio-economic havoc wreaked by the pandemic has demanded that governments around the world to do what they should have already done: prepare for the next pandemic, which disease experts predict will come sooner rather than later.
As Andy Plump, co-founder of the Covid Research & Development Alliance, recently asserted in The Conversation: in the same way that governments prepare for national defence, they “must now also prepare for another pandemic.”
For investors interested in playing an active role in reshaping the future of healthcare, this is a
positive trend, albeit on the back of a devastating virus.
Governments have already spent at least €93 billion (R1.6 trillion) on Covid-19 vaccines and therapeutics globally, according to a recent study by the non-profit kENUP Foundation. From this, it’s clear that global government spending on the prevention and cure of pandemics will only increase, buoying private investments in the healthcare sector.
The Pandemic Puzzle Piece
Although the Covid-19 pandemic continues to dominate national discourse and has accelerated investment into healthcare globally, it’s but only one piece of the overall puzzle of worldwide health investment.
Long before the pandemic Sygnia had identified healthcare research and development as a core thematic investment focus.
Thematic investing is looking at predicted long-term trends, rather than specific companies or sectors. This enables investors to “get in early” on major shifts that can change an entire industry and bring improvements to business, living conditions, the environment, social inequalities and more.
Alongside 4th Industrial Revolution technologies, renewable energy and Environmental, Social and Governance investing, we have long pinpointed the US$9.59 trillion global healthcare market as one of our thematic investment focuses for a myriad of reasons.
Broadly speaking, these can be summarised as: an ageing population that requires more healthcare; pressure on governments to equalise access to healthcare; and the consumer-driven shift from cure to prevention.
The Cure To Prevention Shift
PriceWaterHouseCooper’s 2021 Global health’s new entrants: Meeting the world’s consumer report identified six trends shaping the future of healthcare globally.
Of particular interest to investors are two trends: shifting from cure to prevention; and innovation, which are of course intertwined.
In terms of future pandemics, prevention and innovation will be at the forefront of investment, with McKinsey’s 2020 Prioritizing health: A prescription for prosperity report noting that: “As societies emerge from the immediate crisis, we can aspire to do more than plug gaps and hope for recovery. We can build a better healthcare system and a stronger, more resilient global economy that delivers better health for all and shared prosperity for decades to come.”
Pandemics aside, the list of diseases without a known cure – such as neurological disorders, cardiovascular disease, cancers and mental health disorders, as well as chronic illnesses such as diabetes and asthma – will continue to drive healthcare innovation in 2021 and beyond.
And the innovation taking place is truly so astounding it’s like watching a futuristic sci-fi blockbuster. Last year alone saw the release of the Nobel Prize winning gene “scissor” tool that snips out pieces of DNA to restore them to their normal function, while other researchers believe they are close to creating artificial kidneys.
At the same time the medical wearables industry is booming, with the latest innovations including smartphone-connected pacemaker devices, intelligent asthma monitoring that can forecast asthma attacks and wearable defibrillators that can help treat life-threatening heart rhythms.
There is a world of medical innovation out there, and early investors stand to benefit hugely.
Or, as Patrick Figgis, PwC Global Healthcare Leader, puts it: “Healthcare represents a significant market opportunity and new entrants recognise that their insights, global reach and value are all distinguishing factors that can assist in grabbing market share.”
Investing In Our Health
While investing in healthcare innovation undoubtedly makes solid financial sense in the current climate, it also makes sound ethical sense.
Consider this: a 2001 Cambridge University study found that around one-third of economic growth in advanced economies over the past century can be attributed to improvements of health. In more recent years, additional Cambridge research has found that health contributed almost as much to income growth as education.
The data is clear: better health equals better living standards and more robust economies, with the McKinsey report estimating that by 2040 around 245 million more people could be employed, about 60 million of whom would have avoided early death from cardiovascular disease, cancers, malaria, and other causes.
The report also found that “focusing on known health improvements could deliver an incremental economic benefit of US$2 to US$4 for each US$1 invested”.
So, getting behind healthcare brings a two-fold benefit to investors: the opportunity to earn high returns, while also contributing to the socio-economic improvement of societies around the globe.
New Funds Ease Investment Access
It is on the back of these trends that Sygnia is launching its second healthcare focussed investment fund in less than a year; the Sygnia Itrix Solactive Healthcare 150 ETF.
This follows the late 2020 launch of the Sygnia Health Innovation Global Equity Fund (SHIGEF) unit trust fund.
Both the SHIGEF and the new Itrix Solactive Healthcare 150 ETF are healthcare focused funds that aim to outperform their global healthcare index benchmarks
The dynamically managed SHIGEF is based on the MSCI World Health Care Net Total Return Index, which sets the benchmark for global healthcare investment across 23 developed markets.
The Sygnia Itrix Solactive Healthcare 150 ETF will replicate the performance of the Solactive
Developed Markets Healthcare 150 Index, which tracks the performance of the largest 150 healthcare companies from the developed market.
That’s where the similarities end, though.
The SHIGEF is a unit trust with as much as 20% local exposure at any given time, whereas the Sygnia Itrix Solactive Healthcare 150 ETF has 100% offshore exposure and, due to being an ETF, can be traded 24/7 with full transparency.
Which is why many investors prefer ETFs as an investment vehicle, and the reason we’ve launched this new healthcare-focussed ETF.
As to why Sygnia has chosen to base this new ETF on the performance of the Solactive Developed Markets Healthcare 150 Index, that’s simple: the Solactive index has achieved a growth of 61.51% since inception, with an average annual performance of 12.24% (in USD rates) as of July.
Of late, this performance is largely due to the index being weighted towards companies that are top Covid-19 test and vaccine producers, such as Johnson & Johnson, Novartis and Abbott Laboratories. While other companies in the Solactive top 8, such as Eli Lilly & Co, are pioneers in treatments for depression and cancer, and other top performers like Abbieview Inc are pioneers of wearable technology for medical conditions.
A Smart, Ethical Choice
Neither the SHIGEF nor the Sygnia Itrix Solactive Healthcare 150 ETF is “better” than the other; they are different investment vehicles, each with their own pros and cons.
The bottom line for Sygnia is that we are now able to provide accessible, low-cost investment into the growing global healthcare market via options that suite the individual client, whether that is a unit trust or ETF.
Because, whichever way you look at it and whichever way you choose to invest, the future of health is not only a smart investment, but also one that will shape the future of generations to come.