A vitamin shot for your investments

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The coronavirus crisis didn't just fuel interest in the technology sector. Healthcare shares were also bought up eagerly. Now that the face masks are in the drawer and we no longer applaud from our balconies every night, it is worth asking: is healthcare still an interesting area for investment?

The short answer is yes. Coronavirus or not, healthcare remains a very relevant topic. There are several reasons for this. The first is demographic trends. Hundreds of years ago, this planet was home to fewer than two billion people. Today, there are four times as many, and there are no signs of stopping. Things are set to become more crowded in the next few years: by 2050, there will be about 10 billion of us, according to UN forecasts.

Getting greyer by the minute

Not only are we surrounded by more people who could break a leg, have migraines or stay in bed with the flu, but we're growing older and older on average. In 1960, life expectancy at birth was 51 years for an average citizen of the world. In 2020, it was 72 years (82 in Belgium). However, living longer also means we are looking at greater health costs. Pensioners in the US, for example, have five times greater health costs on average than children, and three times more than the "working population".

An economy unto itself

Besides the demographic aspect, it is important to highlight the economic factor. According to the latest figures from the World Health Organisation (December 2022), USD 9,000 billion was spent on healthcare globally in 2020. This represents 10.8% of global GDP. Even in the years before the coronavirus outbreak, it was somewhere around 10%. For every EUR 100 we spend, around EUR 10 goes on our health. This makes healthcare a very important pillar of the global economy.

Rising spending in emerging countries

In Western countries in particular, healthcare takes a big chunk out of family and government budgets. In the US, for instance, no less than 17.8% of GDP goes on health care (11.1% in Belgium). In the larger emerging countries, a different story is playing out. In China, for example, spending is still "only" 5.3% of GDP, while in India this figure is 3%, though there is a noticeable upward trend. While the wealth of these emerging countries is on the rise, rich-country illnesses are also emerging there, and there is scope for less essential health expenditure such as health drinks, meditation apps and smart watches.

Less vulnerable in case of economic headwind

Finally, stability is also a factor that makes investing in healthcare attractive. You might delay the purchase of a new sofa or racing bike in uncertain economic times. But for ailments like appendicitis, a hole in your molar or a sprained ankle, you almost certainly won't be waiting for times to improve before seeking treatment. Health care is therefore an area that traditionally varies less in line with the economy.

A broad investor universe

Anyone considering investing in healthcare may initially be drawn towards investing in pharmaceuticals. However, healthcare encompasses a much broader investment universe, with both risky and less risky sub-sectors:

  • Healthcare real estate and infrastructure: construction, maintenance and management of hospitals, residential care homes, etc.
  • Health care providers and service providers: hospitals, laboratories, pharmacies and health centres.
  • (Para)medical devices, aids and accessories: manufacturers and distributors of medical devices, such as equipment for radiology, emergency rooms, surgery, ambulance equipment, etc. This also includes suppliers of IT solutions and other support services for healthcare institutions and staff.
  • Pharmaceutical companies who are active in the research, development and/or manufacture of medication.
  • Biotechnology, where companies focus on new treatments that could potentially generate high revenues.

How to invest in healthcare

You can invest in this area via individual shares, trackers (ETFs) and actively managed investment funds.

  • For individual shares, you need to screen, buy, and sell and monitor them yourself. Shares offer a high potential return, but also represent a higher risk. Diversification is the watchword if you opt for individual shares.
  • Trackers or ETFs mirror an index – in other words a basket – of companies operating in the sector. With a single tracker, you can therefore gain broad exposure to the sector. However, you should look closely at exactly what the tracker comprises.
  • Investment funds also invest in a basket of companies, but this is where a manager pushes the buttons that lead to decisions being made. Instead of tracking a whole index, the manager chooses only those companies that align most closely with the fund’s strategy

Looking for trackers or funds in the area of healthcare?

  • Log in to Keytradebank.be on your laptop or desktop
  • First select "search by instrument name, symbol or ISIN", then "Advanced"
  • Tick "Tracker" and/or "Fund"
  • Search for the term "health"

This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.

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