The United Nations estimates that the world’s population will increase by about a billion by 2030, with the over 60s bracket growing faster than the younger age groups. By 2050 the number of people aged 60 or more will have more than doubled to 2.1 billion and there is also likely to be a significant increase in those in the 80 plus category.
It is impossible to overstate the impact that this will have on the global economy with one of the main areas affected being the demand for healthcare. To put it into perspective, Japan expects its national healthcare bill to increase by more than 50% between 2012 and 2026, and we are already seeing the pressure on NHS budgets in the UK.
This unprecedented increase in demand creates a compelling long-term investment opportunity in the healthcare sector and there are plenty of companies with exciting new treatments in development. There are also some very good healthcare funds if you don’t feel comfortable investing in the individual stocks.
The largest investment trust in the sector is the Worldwide Healthcare Trust (WWH) that has around £1.2bn of assets under management. It is managed by OrbiMed Capital, a specialist healthcare investment firm that employs a team of more than 80 scientists and medical/investment professionals.
OrbiMed has a global investment universe of almost 1,000 companies that range from early stage businesses with pre-clinical assets to the large, fully integrated biopharmaceutical stocks. They use this data to look for firms with underappreciated products in the pipeline, which have good quality management teams and that are adequately financed. WWH shares are up around 500% in the last 10 years.
There is no doubt that the most exciting area of the healthcare sector is biotech and OrbiMed has an investment trust that is dedicated to this particular part of the market. The Biotech Growth Trust (BIOG) has £430m of assets under management and provides exposure to a concentrated portfolio of 34 stocks that include the likes of Celgene, Biogen, Amgen and Gilead Sciences.
Biotech companies are at the cutting edge of the healthcare sector and responsible for developing a whole range of innovative new treatments. A successful drugs trial can result in a surge in the share price and may even lead to a takeover by one of the large pharma companies, although a poor outcome could prompt a massive sell-off, hence the advantage of investing in a well-managed fund. BIOG shares are up around 670% in the last 10 years.
Most funds in this area target capital growth, but the new Biopharma Credit investment trust (BPCR) aims to generate most of its returns in the form of sustainable income distributions. It raised $762m at its IPO in March this year and will use the money to invest in debt instruments, including royalty debt instruments, in the life sciences industry.
BPCR is managed by Pharmakon Advisers, which specialises in this area. The firm looks for companies with predictable revenues, but large R&D budgets that have to be financed and will only lend where the debt is secured against life sciences products that have already been approved by the regulator.
The portfolio is not yet fully invested, but once it is the aim is to pay a dividend of $0.07 a share, which would be equivalent to a yield of over 6%, so it is well worth monitoring if you are looking for income.