(The opinions expressed here are those of the author, a
columnist for Reuters.)
By John Wasik
CHICAGO Aug 4 For healthcare, gray is the new
The fastest-growing segment of the global population is aged
60 and over, according to the United Nations Department of
Economic and Social Affairs. That slice of humanity is expected
to increase by 45 percent by 2050.
The surge in the older population has contributed to a wave
of new product introductions in biotechnology, medical devices
and pharmaceuticals, and expansion of healthcare services.
In addition, healthcare is a remarkably durable sector for
investors, soldiering on despite periodic market downturns, like
the one seen last week when the S&P 500 index had its worst week
Overall, there's a bounty of money being spent on healthcare
that's unlikely to be impacted by other economic trends.
One of the best ways to own the biggest players in the
healthcare industry is through the Vanguard Health Care ETF
, which holds global giants like Johnson & Johnson
, Pfizer Inc. and Merck and Co..
Charging 0.14 percent in annual management expenses, the
Vanguard fund, which is almost entirely invested in U.S.-based
stocks, gained 20 percent for the 12 months through Aug. 1,
compared with 15 percent for the S&P 500 Total Return Index.
Long-term, the Vanguard fund has been a solid performer,
averaging 10.5 percent annually for the decade through Aug. 1.
That compares with an average 7 percent return for the MSCI
World NR stock index.
For more non-U.S. exposure, consider the iShares Global
Healthcare ETF, which charges 0.48 percent for annual
The iShares fund has about 60 percent of its portfolio in
North American stocks, with the remainder in European and
Asian-based companies such as Novartis AG, Roche
Holding AG and GlaxoSmithKline PLC. The fund
gained 19 percent over the 12 months through Aug. 1.
For a more focused play on leading-edge biotech and genomic
companies, the First Trust NYSE Arca Biotech Index ETF
samples some of the hottest companies in that sub-sector.
Holdings include industry leaders Gilead Sciences Inc.,
Biogen Idec Inc. and InterMune Inc..
The First Trust fund was up nearly 25 percent for the 12
months through Aug. 1; it charges 0.60 percent in annual
GOOD VALUATIONS AVAILABLE
Since most institutional portfolio managers have seen the
merits of healthcare stocks for years, there are probably few
bargains available, although some sectors are pricier than
others. Biotech stocks, in particular, are in high demand,
although they experienced a sell-off earlier this year.
"On the other hand," Fidelity Investments analyst Eddie Yoon
said in a recent report, "some large-cap, stable growth
companies across the (healthcare) sector continue to appear
attractive, based on their stable underlying business
Unlike other sectors such as consumer discretionary that are
directly tied to overall economic conditions, healthcare is
often insulated from broader economic trends. When the S&P 500
index dropped 37 percent in 2008, the Vanguard fund only lost 23
percent; the First Trust fund was off 18 percent. While biotech
stocks tend to be volatile, the mainstream healthcare companies
are seen as defensive holdings and more immune to broader market
pressures and poised for bankable growth.
Long term, the more volatile biotech stocks of today may be
tomorrow's winners. The growing science of genomics will allow
biotech companies to customize drugs to a patient's genetic
make-up. Just three years ago it cost $95 million to sequence a
human genetic code. Now it costs about $4,000, with the price
dropping every year. That will translate into more precise
treatments with fewer side effects.
There are several concurrent waves of innovation in health
information technology, diagnostics and delivery of services.
More patients can be monitored and treated at home with the
improvement in information technology. Diseases are being
discovered and treated earlier, which means fewer
In the United States alone, healthcare spending is buoyed by
the $3 trillion spent annually on Medicare patients. While
policymakers say this number is unsustainable and must be reined
in, that does not change a key fact: Some 10,000 Baby Boomers
are turning 65 every day. They will continue to demand the best
drugs and treatments.
(Follow us @ReutersMoney or here
Editing by Lauren Young and Leslie Adler)