Healthcare: Healthy returns for investors
Mr Zimmermann, with the term Healthcare, many investors still primarily associate classic, rather defensive pharmaceutical companies. What exactly belongs to Healthcare from your point of view?
Zimmermann: We distinguish five subsectors at Bellevue. Three of them are drug development companies, with annual sales of approximately $ 600 billion, but that's only about eight percent of the global healthcare market. Second, generics, that is, wherever imitation products come on the market to ensure a wide supply cost. This requires, however, that the patent protection has already expired. The area is growing at about six to eight percent per year. And most powerful among drug developers, at least in terms of growth, is biotech, with approximately $ 150 billion in annual sales. But the growth is ten percent.
What about the other two segments?
Zimmermann: On the one hand, this is the classic field of medtech. These include the companies that make medical devices that are used in the hospital, for example, or the devices that are implanted, such as hip implants, pacemakers, etc. The medtech area is about 450 billion US dollars and grows at five to six Percent. Finally, the fifth sector is the services sector, which is the largest in the Healthcare sector with $ 7000 billion in sales. Among them, you can subsume everything from hospitals, nursing homes, doctors but also IT or health insurance companies. Here, growth is around five percent.
Why should investors even concern themselves with the sector?
Zimmermann: One big advantage is that the health sector is very resilient to the economic cycle. Healthcare is not subject to a business cycle. And at around five percent, the sector is about twice as strong as global economic growth.
What are the drivers for this above-average growth?
Zimmermann: There are three main drivers: On the one hand, the demographics. We're getting older, and it's been shown, the older people are, the sooner they want to get into the medical spare parts warehouse, if I may say so. Obsolescence clearly means that the demand for medical services is increasing. The second growth driver is the change in lifestyle. Unhealthy diet coupled with little exercise and stress lead to chronic diseases such as diabetes or cardiovascular disease. For example, there are currently 420 million diabetics worldwide, and the trend is rising. And the third is the actual development of medicine, that is, innovation. These include new forms of therapy or digitization, which, for example, results in a better and more effective diagnosis.
How big is the investment universe you are watching?
Zimmermann: We only look at the listed companies and that's over 3000 worldwide. We filter these companies according to certain criteria such as market capitalization, free flow and the daily trading volume and then come to about 600 companies worldwide that belong to our universe.
Which sectors are particularly interesting?
Zimmermann: It always depends on how interesting you define. We have eight criteria for analyzing companies. On the quantitative side, we look at the market, valuations, growth potential in terms of sales and margins. On the qualitative side, it's about management, products, operational risks and country risks. Exciting are naturally companies from the field of biotech, which deal for example with gene therapy or personalized medicine. Also modern therapies in the field of cancer include or medtech areas, such as minimally invasive procedures. And the use of artificial intelligence is becoming more and more of an important topic.
Do you only focus on industrialized countries or are you also looking at growth markets such as China or India?
Zimmermann: We clearly have a global view. Above all, Asia is an essential part of every portfolio that deals with healthcare. I think that sets us apart from many other competitors. We have been active in growth markets such as China, India, South Korea, Indonesia or Singapore for almost 20 years.
They like to emphasize the importance of an active management approach to healthcare. Why?
Zimmermann: We try to invest in a future-oriented way, so I think an active approach is absolutely necessary. Take a look at the MSCI World Healthcare Index. It actually contains the most important companies globally. However, the index is calculated by market capitalization, which means there are 90 percent large caps in it, 70 percent in the US and 40 percent in pharma. At the same time, the Asian share is only six percent. We have 320 million US citizens, but about 10 times as many people live in India, China, Indonesia. This means that if someone invests passively, then he renounces Asia, he renounces the mid caps and exciting companies from the fields of biotech and generics. That's why we developed our own index twelve years ago, and it has grown more than 200 percent better than the MSCI World Healthcare to date. Our solution shows that if you rely more on low-cost mid-caps that are well established in the market and operate in a market niche, then you have been much more successful over the last twelve years.
Why should investors invest in healthcare right now?
Zimmermann: From a fundamental point of view, biotech and generic drugs are still very cheap. In addition, we have never had as many approvals in the biotech field as now. And in the field of medtech, some interesting new devices are coming onto the market. This shows the enormous potential that investors can benefit from over the long term.