LONDON: A long-term prescription to consider for your investment portfolio.
Jul 25, 2012
- Significant investment opportunity - ageing population and longer life expectancy increases demand for healthcare
- Emerging markets will account for 70% of growth in demand for pharmaceuticals over next five years.*
London, 25 July 2012: With the healthcare sector delivering attractive returns to investors over the last decade, J.P. Morgan Asset Management looks at reasons for the strength of global healthcare, and explains why healthcare stocks continue to provide attractive investment opportunities for long-term investors.
A growing elderly population
Healthcare is a significant part of the global economy accounting for more than 10% of GDP across many developed countries and according to J.P. Morgan Asset Management, the sector presents a diverse range of compelling investment opportunities as ageing populations and longer life expectancy create rising demand for healthcare products and services. By 2025, nearly 30% of Europeans and 25% of Americans will be over the age of 60**. Globally, the fastest growing population segment is the over 60s, with the number of people in this age group expected to almost triple to two billion by 2050**.
Scott Braunstein, portfolio manager of the JPM Global Healthcare Fund comments: "The healthcare sector is well placed for further impressive growth, supported by ageing populations across many countries and growing healthcare spending in the emerging markets. We believe it may therefore be time for long-term investors to consider adding healthcare exposure to their portfolios.
"There are diverse investment opportunities – from defensive large cap pharmaceutical stocks offering solid dividend yields and expanding their businesses into emerging markets, through to the explosive growth prospects offered by biotech companies developing new drugs that could make a real difference to the lives of millions of patients."
Pharmaceutical stocks can offer safety in uncertain markets thanks to good dividends, strong balance sheets and relatively stable businesses, although pipelines remain challenged. Today, many large pharmaceutical companies continue to face a challenging outlook as patents expire for blockbuster drugs with little sign of replacements on the horizon. Additionally, uncertainty over US healthcare reform and government budgetary pressures remain an overhang, although these worries could ease after the November 2012 elections. In Europe, where governments are the key payers, market access remains difficult. Public spending cuts are putting pressure on pricing in the healthcare sector and accelerating a move towards generic drugs.
Explosive growth opportunities in biotech
The biotech sector has performed strongly over the last decade, significantly outperforming the broader MSCI World Healthcare and MSCI World indices. The sector showed particular resiliency during the 2008 downturn in equity markets. Global expansion and growth opportunities, high operating leverage for biotech companies with small sales forces and low cost bases as well as M&A have all contributed to the strong performance of the sector.
Scott Braunstein continued: "Over the longer term, we believe that product pipelines and earnings growth potential, which have largely been ignored over the past few years, will once again move to the forefront of investors' minds when considering the pharmaceuticals sector. We continue to be overweight in the biotech space as we expect more pipeline success and believe that the valuations of the stocks we own. Against this backdrop, the JPMorgan Funds - Global Healthcare Fund has around 45% invested in pharmaceuticals and nearly 30% of the portfolio*** is invested in biotech stocks.
"Selectivity is the key to identifying the winners in this sector. At J.P. Morgan Asset Management we have a team of highly experienced, dedicated healthcare specialists with, on average, 15 years' industry experience. Experience and expertise is crucial to fully understanding the investment potential and the risks associated with this often complex sector. We look to invest across the entire healthcare sector in companies that meet the following four criteria: Science forms the foundation of all investment decisions; attractive market opportunities via new therapeutics to serve large and changing medical needs; Intellectual property – solid patents and global rights can yield strong returns for many years and finally, a strong management team is key in delivering product to market."
Notes to Editors
The JPM Global Healthcare Fund
The JPM Global Healthcare Fund provides a compelling way for investors to gain exposure to the diversity of the sector and the fund has delivered strong performance over the last three years, returning 18.3% annualised, outperforming the MSCI Healthcare index by 5.3%. The fund is ranked top decile over one, two, three and four years out of 53 global healthcare funds in Europe.
*Source: IMS Health data, 2010
**Source: United Nations: World Population Ageing report, 2010
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About J.P. Morgan Asset Management
J.P. Morgan Asset Management is part of JPMorgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US $1.3 trillion in assets under management (the Asset Management client funds of JPMorgan Chase & Co. as at June 30th 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.
J.P. Morgan Asset Management is a trading name of J.P. Morgan Asset Management Marketing Limited, which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered office: 25 Bank Street, Canary Wharf, London E14 5JP.
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