Even though profit warnings beset the US healthcare sector, America's private healthcare providers c...
Even though profit warnings beset the US healthcare sector, America's private healthcare providers continue to prosper. The managed health sub sector, as it is known, has outperformed the S&P 500 Index by 41.22% in dollar terms over the calendar year to 12 July 2002.
Alex Ingham, North American equities fund manager at Aberdeen Asset Management, says that as all Americans need health insurance, companies in the sector have strong pricing power and have been able to raise prices recently.
As a result, over the year to 12 July the sector has produced a dollar return of 21.47% compared to the S&P 500 Index, which has declined by 19.75%. This makes the sector the second best performer in the index, behind gold, which has posted a return of 22.84% over the same time period, also in dollar terms.
Ingham says he is presently overweight in the sector and will continue with this stance going forward after a recent survey on pricing expectations for the next year was positive for managed health.
The overall US healthcare sector is down by 25.15% over the year, which Ingham says is predominantly due to the problems in the drugs sector, which constitutes around 70% of the entire healthcare sector.
He says: 'There are a number of issues in the drugs sector. Several companies like Bristol Myers, Eli Lilly and Pfizer have put out profit warnings and there has been a lot of negative newsflow around drug approvals, mainly due to manufacturing issues.'
As a result Ingham is presently underweight in drugs, with more money in biotech, drug distributors and hospitals. He says: 'Biotechs have now stabilised and are at attractive valuations after coming down a long way through the first half of the year. As a result of this we started buying biotechs again a month ago and are now overweight in the sector.'
Ingham says that to begin investing in drug companies again he is looking for relative valuations approaching trough levels. On a valuation basis he says that he is getting close to investing in the sector again.
It was announced earlier this month that Pfizer was buying Pharmacia, creating the largest drugs company in the world. Ingham says that consolidation is normally seen at the tops and bottom of markets, so in this case it could be a sign that the drugs sector has bottomed.
Kristine Bryan, manager of the Schroder ISF Medical Discovery Fund says that while the health care sector is in a period of evolution, over the last seven years it has returned over twice the market average and she believes it is a sector which still has potential to deliver.
She says: 'We are currently going through a transition as the market adjusts to the decelerating, but still positive, growth for pharmaceutical companies. On the other hand, other sub-sectors are posting strong growth and will help compensate for the lower returns from pharmaceuticals in the near term.'
Bryan adds that it is possible to identify sub-sectors within healthcare that are likely to benefit from the anticipated upturn in the global economy. One such sub-sector, she says, is medical services.
US managed health outperformed S&P 500.
Biotechs are stabilising and at good valuations.
Drugs sector may be bottoming out.
Overall US healthcare is down 25.15%.
Sveral drugs firms have issued profit warnings.
Drug firms experiencing less growth.