As a new level of uncertainty spreads through the market, investors are looking for ways to rejig portfolios in order to safeguard assets and generate long-term growth. Given the current investment environment, and rising fear around trade wars, there is one particular sector that appears to be an attractive investment opportunity: healthcare.
For Harvest Portfolio’s CIO Paul MacDonald, it’s little surprise that investors are flocking back to the sector.
“I believe we have seen a shift, and people are once again looking at the fundamentals of companies when making investments,” MacDonald says. “Healthcare companies, and specifically pharmaceuticals, have products that we call superior goods, which means people are going to buy them in up and down markets. They are going to buy these products before purchasing a new television or another consumer discretionary product.”
Shifting sentiment is playing an important role in the success of healthcare stocks. During the 2016 US election campaign, there was a lot of noise around drug prices, which cast negativity around the whole sector. That negativity caused the sector to trade at a fairly substantial discount to the market, which is atypical of it has traded historically.
“We had negative sentiment driven by political rhetoric around drug pricing but that has subsided quite a bit and been a main driver for a shift in the sector,” MacDonald says. “Companies are really hitting their estimates and we are starting to see multiples normalize. We are still very positive. Looking back over history, healthcare performed well in down markets and that is also attracting investors. It is an attractively valued sector that has defensive characteristics.”
Taking advantage of the healthcare sector can be a challenge for Canadian investors given the country’s universal health-care system. It’s for that reason that Harvest launched its Harvest Healthcare Leaders Income ETF; a fund that owns 20 of the biggest healthcare companies in the world and has a monthly distribution, yielding over 8% annually. The ETF, which features mainly US listed securities, has a minimum market cap threshold of $5 billion, so companies in the portfolio tend to be global in nature.
“Our aim is always to generate income and achieve long-term growth, and healthcare is definitely an area in which Canadians are underrepresented,” MacDonald says. “It is undeniable that the long-term permanent and non-cyclical trends are supportive of the sector, driven by the aging population and technological innovation. There are some key macro drivers that make healthcare a good investment option right now.”