Fund giant BlackRock believes there will be movement towards reducing reliance on the current hospital-centric system, resulting in reforms for telemedicine, a segment that is becoming increasingly popular amid the coronavirus pandemic.
‘In the US, we have already seen some medicare reform to expand coverage to include telemedicine services and as result we believe increased adoption will persist going forward,’ said Erin Xie, portfolio manager and head of health sciences, fundamental active equities, in an interview with Citywire Asia.
After the recent spike in telehealth usage the last few months, digital health stocks surged to new levels, not to mention the rise in funding for telehealth companies in the US and Asia.
Shares of US giant Teladoc is already up 90% year-to-date trading at $190. Its competitor American Well raised $194m in funding across two tranches. Many early investors and partners participated in the round, including Allianz X and Takeda.
In Asia, Singapore headquartered start-up Doctor Anywhere secured $27m in Series B financing led by Australian venture capital Square Peg, Singapore government investment arm EDBI, and healthcare provider IHH Healthcare.
Earlier this month, OCBC Bank partnered seven medical groups to launch the HealthPass mobile app, providing access to more than 100 general practitioners and specialists. Apart from the Singapore Medical Group, StarMed Specialist Centre, Thomson Medical, Faith Medical Group, OneCare Medical Group, Etern Medical and True Medical are among its partners.
‘Select names related to telehealth, diagnostics, patient monitoring, and in-home health care have benefitted in the current environment,’ said Citywire A-rate Xie, who manages the BGF World Healthscience fund.
‘We are allocated to several telehealth names within the World Healthscience strategy. While we have seen short-term pressure on certain areas of healthcare as a result of social distancing and lockdown measures, we believe these areas of health care are already seeing a return to normalcy,’ she added.
The $8.1bn World Healthscience fund launched in 2001 allocates roughly in-line with the MSCI World Health Care Index. It has over 70% exposure to US healthcare companies, though Xie feels many US-based companies generate a sizeable portion of their revenue internationally.
The rest of the fund is invested in healthcare companies across Switzerland, France, Japan, China, Australia, and Germany. Pharmaceuticals, healthcare equipment, bio technology, healthcare providers, and life sciences tools are among its top sector picks.
Most of the fund’s top holdings are in companies with additional presence in the telehealth space. Xie bought shares in the UnitedHealth Group and Amgen Inc in 2009, followed by Medtronic PLC and Baxter International the next year. She added Sanofi SA and Merck &Co Inc to the mix in 2011, and Roche Holding in 2017.
Over a year ending May, the fund returned 24.1%, outperforming the sector average by 4.4%. In the three months to the end of May, the fund returned 12.5%, outperforming the sector average by 2.1%, data from Citywire show.
Within a highly fragmented sector like healthcare, dispersion of returns is quite high between the various sub-sectors and individual companies within the space, Xie pointed out.
‘One of the risks for investors is being overly concentrated in a particular sub-sector or heavily invested in highly volatile names that depend on the successful outcome of a single drug.
‘An intensive bottom-up research and diversification across sub-sectors and names can alleviate some of these risks,’ she said.
This year the fund manager reduced her underweight to select pharmaceutical names in order to better position for clinical trial results for Covid-19 related vaccines and therapies that will come later this year.
At the same time, she added to attractively valued cyclical consumer healthcare companies that came under pressure as a result of Covid-19.
BlackRock likes the medical devices and supplies sub-sector, particularly invasive implant technologies. Within biotechnology, it has an eye on antibody-drug conjugate treatments designed as a next generation therapy for treating cancer.
‘We are cautious on select large-cap pharmaceutical companies experiencing patent expiration in coming years, while not necessarily having the product pipeline to replace these revenue streams,’ Xie said.
In the equity pharmaceuticals and healthcare sector tracked by Citywire, Xie is ranked 14 among 101 fund managers. Her three-year and one-year manager performances ending May are 49.2% and 26% respectively.