WHEB Commentary

Clare Brook

‘A pint? That’s very nearly an armful!’


I had to have a blood test earlier this week. I’m squeamish about blood and needles – the very word blood makes me feel faint and clot is my least favourite word in the English language. To make matters worse, having cycled to University College Hospital (slightly shaky, with no breakfast, as per the instructions), I was then redirected twice to the phlebotomy unit, which is about half a mile from the main hospital, past cancer care, dialysis, cardiac, urology… (Names that are apt to make me pass out if I dwell on their meaning.)

But what is clear from the sprawling land mass that is UCH, is that healthcare and preventative healthcare are big and getting bigger. Two inexorable trends support the ever-growing need for healthcare around the world: the population is growing and the population is ageing. Some statistics that we often quote at WAM are these: that the number of people over the age of 85 is set to almost treble in the EU between now and 2050. And that once you are over 85, you use on average nine times the amount of healthcare products and services that the average person under 65 uses. Depressing, but true. And of course it isn’t just the EU. Japan already has the highest average life expectancy – at 80 – with a quarter of the Japanese population over 65. The same percentage is expected to occur among the Chinese population by 2050 – up from a mere 8%, or 113m, at present.

Even during the current decade, this translates into a Compound Annual Growth Rate on health spending of 10% – or an increase from $6 trillion to $10 trillion by 2020. Although 50% of that growth is expected in the US – where per capita spend is projected to rise from $8,400 to $12,300 – the corresponding rise among the BRIC countries of $200 to $500 will, multiplied across the demographic shifts outlined above, account for a considerable proportion.

In these uncertain times, the certainty of these trends is reassuring, and means that currently healthcare (which we split into life science and diagnostics, health services, medical devices, health IT, home and elderly care and healthy living) forms 32% of our portfolio, our biggest single theme exposure. (Compare this to renewable energy where we currently have 1%.)

However, there are clearly pressures on healthcare expenditure and budgets which make us careful about the particular sub-sectors and stocks that we pick. We aim to invest only in those healthcare companies whose revenues are not subject to the vagaries of governmental spending. The US, which represents the biggest healthcare market in the world, is in an election year. Were the Republicans to gain control of the Senate, there would be a distinct possibility that Obama’s health care bill would be repealed or have key elements stripped out. This would be negative for companies reliant on Medicare and Medicaid, such as the managed health companies.

So we prefer to invest in companies that help deliver better healthcare services more efficiently and more cheaply. Intuitive Surgical is a leader in operative surgical robotics, which saves money by reducing the number of expensive surgeons needed and by reducing recovery time spent occupying a hospital bed. IPC The Hospitalist manages patients in hospital to take the burden off GPs and thus reduce costs.

Meanwhile, my blood is probably being analysed in a diagnostic laboratory similar to those run by LabCorp, another of our holdings. And I’m off to have, in the immortal words of Tony Hancock, ‘my cup of tea and a biscuit.’

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