Ismael García, Investment Manager & Fund Selector
Global health has been jeopardized by the outbreak of the COVID-19 virus. Though not the first pandemic we’ve had to deal with, it has certain aspects, like the speed of its transmission, or the high mortality in people over 60 with underlying illnesses (cardiovascular, diabetes, high blood pressure, cancer, etc.) that make it unique. Concentrated populations in large urban areas and modern levels of globalization have brought the number of infected people, from the first case in China a few months ago, to a figure exceeding 4 million worldwide.
And this isn’t the first crisis affecting the savings invested by so many families either. The resilience of investors’ portfolios, like that of healthcare systems, has been tested, and those with the highest ‘health’ levels have managed to cope better with the pandemic’s effects on financial markets. ‘Health’ here is not only referring to robust portfolios, but to portfolios with significant holdings in healthcare sector companies.
Of the eleven sectors making up the MSCI WORLD Index (global equity reference index), the healthcare sector performed best during the first quarter of the year with a return of -10.8 percent, compared with an average of -20.1 percent from the other sectors. Even though this sector historically achieves better returns in phases of recession and combines both defensive and dynamic characteristics, its performance in this quarter has been better than that observed during other crises. Perhaps the intense struggle to overcome the current health crisis and the high demand for products and services related to the sector (vaccines, tests, ventilators, medical apps, etc.) are behind this better performance.
In spite of this, the healthcare industry as a whole has not been immune to the lockdown. Many medical centers that didn’t offer direct services against the virus have had to close their doors and many operations, treatments for chronic illnesses or general consultations (orthopedics, physical therapy, traumatology, etc.) have been postponed. Pharmaceutical companies have also been affected. The race to find a drug and/or vaccine for the virus has slowed research into other treatments that were being developed earlier, damaging these companies’ future prospects for revenue. Even though the outlook described here seems negative, damage to the sector won’t be permanent.
Like any other sector, healthcare encompasses different specialty areas that could benefit from the forces of change brought on by the outbreak of the pandemic. We are referring, for example, to technological innovations that revolutionize the doctor-patient relationship (e.g. Savia), the development of genetic therapies for the discovery of new vaccines, or increased use of surgical robots.
We also have our hopes set on innovation to find a cure or vaccine for the virus. Today, there are over 100 clinical trials searching for a treatment and the best positioned are those designed to deal with other viruses, such as Remdesivir (used against Ebola). But it’s vital for the health of our portfolios that we don’t invest based on hopes for the discovery of a vaccine. First, because it seems unlikely the vaccine will be available in less than 18 months. But second, and certainly most important, is that no investment decision can be the result of a binary decision: success or non-success (vaccine or no vaccine). Not to mention how extremely inadvisable it is to invest in a company with the notion that it could be the one to discover the vaccine. Our investments must be based on our current financial situation and the objectives we have in the medium- and long-term. Talk to a financial advisor; they’re in a position to provide you with a ‘recipe’ for success.
Returning to the healthcare sector, public health agencies are recommending three factors for fighting the virus: its early detection, the flexibility to adopt the most effective measures possible, and the good judgment needed to apply them correctly and to the extent necessary. Again, the correlations with the investment world are clear. While it’s impossible to anticipate what will happen in financial markets, the detection of certain abnormalities in the behavior of some assets (overvaluation, a false sense of liquidity, concentrated risk, etc.) will help us avoid problems if the market turns around again. The flexibility we get from investing in investment funds is not only exceptional but unique in that is offers a wide range of possibilities (in fact, there are more funds available than quoted shares). And last but not least, having a plan and implementing it with the necessary care will put us in the best position to deal with this and any other crisis.