QROPS Advice: Spotlight on Global Health Care investments

Such is the vast size of the world's leading pharmaceuticals firms, that many investors will already have a small exposure to the Health Care sector, via their exposure in many of the world's global equity funds. What many investors don't realise, however, is that a niche industry of specialist Health Care-focussed investment funds have been available for over 25 years.
Healthcare funds invest in the stocks of companies that operate within the healthcare sector. This encompasses a wide range of industries, detailed further below. The managers of these funds seek out companies that have upside potential from new drugs, discoveries, patents, products and even procedures.
Historically, the fortunes of Health Care funds have been greatly attributable to two major influences; political events and demographic shifts, both of which are particularly topical at the moment.
The appointment of Barack Obama as U.S President has caused understandable excitement in the Health Care fund industry, given his pre-election promise of a shake up in the American medical system. The provision of medical insurance to the estimated 46.3 million residents currently without any arrangements, and the task of improving what has historically been a much-criticised state system could prove extremely fruitful for the many companies in the vast Health Care industry.
The impact of socio-demographic movements over recent years also looks promising for the Health Care fund industry. Whilst such funds are widely considered as a defensive holding (after all, the need for medical care is universal and often independent of economic cycles), the rise in prominence of 'emerging market' countries ensures that the gap between the standards of medical provision and solutions worldwide, become ever smaller. For example, several India-focused healthcare funds have been launched recently as India's healthcare services market undergoes robust expansion. According to Technopak Advisors, the USD35bn Indian healthcare industry is projected to touch over USD75bn by 2012 and USD150bn by 2017. As medical standards in such countries improve, so do life expectancy rates which, in-turn, favours medical supply companies.
There are highly specialised Health Care funds available, with significant differences amongst them. For example, some specialize in big pharmaceuticals, including some of the world's largest drug companies such as Pfizer Inc and Johnson & Johnson. Other healthcare mutual funds specialise in biotechnology stocks. Such funds invest primarily in companies that use biological processes in the development or manufacture of a product, or in the technological solution to a problem. There are also healthcare funds that own hospital companies, makers of medical devices, distributors of medical supplies, and so on.
Well diversified Health Care funds which invest across the many specialist sectors of the industry prove to be the most popular, particularly when held as an investment via a pension or a holding in a life assurance contract. Derek Tanner, manager of the the Hansard Invesco Healthcare fund (MC22, available in both HIL and HEL) looks back at 2009, and forward to 2010, commenting "The health care sector was favoured during the quarter as investors saw more action around the US health care reform efforts.
It is important to note that not all health care companies will be affected by health care reform in the same way. Some industries, like health care equipment and biotechnology, are less exposed. Managed health care will be among the most directly impacted by efforts of health care reform.However, we believe fear is largely baked into these stocks that are now trading at major discounts. As a result, we continue to overweight these sectors.
We tend to believe the future of health care is in biotechnology rather than pharmaceuticals. Within biotech, our emphasis is in profitable large-cap companies that are generating sufficient free cash flow rather than small-cap start-ups that typically lack liquidity and earnings."