How to invest in health care

2020 will forevermore be the year branded by COVID-19, and the catalysts triggered from the pandemic will continue to play out for many years to come.

Unsurprisingly, there has been a huge reliance on the health sector. The dependence and focus on healthcare companies are not showing any sign of slowing down, and if anything, will likely increase as the COVID vaccine continues to be rolled out.

With this in mind, it’s a timely opportunity to dive into the sector and explore the opportunities for investors.

Why did healthcare remain strong in 2020?

Healthcare companies are traditionally considered to be defensive in nature, meaning their services and demand remains steadfast regardless of economic activity, making them non-cyclical.

Historically, the healthcare sector has remained buoyant despite broader market turmoil. In 2020, when the broad stock market fell 1.5%, the healthcare sector delivered a 3% return. Looking further back, in the 2008 GFC, the Aussie share market fell 41% while the healthcare sector only fell 11%.

In 2020, demand for healthcare increased dramatically as the world looked to leading healthcare companies to help manage and monitor the outbreak, care for the ill, and fast-track a vaccine – no small list of responsibilities!

It’s no surprise the companies that met these demands performed strongly in the share market. Respiratory product maker Fisher & Paykel Healthcare (ASX:FPH) rose 47%, PPE manufacturer Ansell (ASX:ANN) rose 20%, diagnostic imaging company Sonic Healthcare (ASX:SHL) gained 12%, health software provider Pro Medicus (ASX:PME) rose 54% and unrelatedly skin repair company PolyNovo (ASX:PNV) rose 97%, becoming one of the best performers.

As the vaccine is rolled out across the globe throughout 2021, and many countries continue to battle serious outbreaks, the focus on health will likely remain prominent for years to come.

Forecast for the healthcare sector in 2021 and ways to get exposure

Despite healthcare’s shaky start to 2021, the sector looks positive, given the demand for health services remains high, and the vaccine rollout is underway. As such, the defensive healthcare sector should continue to perform well and we think that companies who manufacture and sell respiratory equipment and PPE, are involved in developing and administering the COVID-19 vaccine and other vaccines to combat respiratory illnesses, or operate in the pathology and testing industry.

Investors can get exposure to the sector via direct stocks, healthcare Exchange Traded Funds (ETFs) or managed funds (mFunds).

A few stocks in the sector you could consider researching include CSL (ASX:CSL), Healius (ASX:HLS), Ansell (ASX:ANN) and Sonic Healthcare (ASX:SHL).

Another way to invest and gain exposure to local and global healthcare companies is through ETFs. ETFs are passively managed funds that are traded on an exchange, similar to individual shares.

Each ETF typically invests in a basket of shares that track an index.

If you invest in an ETF that tracks the S&P/ ASX200, you will already hold some shares in health companies such as CSL (ASX:CSL), given it’s one of the largest companies on the ASX.

To get concentrated exposure to the health sector, including some of the largest global healthcare companies, you could invest in an ETF which tracks the global health sector index. Two examples of healthcare ETFs are BetaShares Global Healthcare ETF (ASX:DRUG) and iShares Global Healthcare ETF (ASX:IXJ).

These ETFs offer diversified exposure to companies producing vaccines, such as Pfizer and Johnson & Johnson, as well as other leading health giants like Merck, United Health, and Roche.

Investing in Healthcare through Managed Funds

mFund is an ASX service that allows you to buy and sell units in actively managed funds with the same security and reliability as any other ASX investments.

Depending on the style and focus on the fund, the exposure to the healthcare sector will differ.

There are some funds that invest solely in the sector, such as Platinum International Health Care Fund. Other funds, such as the Janus Henderson Global Equity Income Fund currently has a 14% weighting to the healthcare sector, while the Hyperion Global Growth Companies Fund currently has a 13% weighting. It’s important to note the allocation to healthcare may regularly shift, at the discretion of the fund manager.

Remember, the most efficient portfolio is a diversified portfolio, so it’s best to include healthcare as one aspect of your asset and sector allocation.

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