As thematic investors we spend our time identifying significant economic trends, and then seeing whether we can find good ways to capitalise upon them.
In our Health theme, there are two clear trends which we’ve been interested in since the foundation of the Fund. The first one is the impact of unhealthy lifestyles, and the second is the ballooning cost of healthcare. Both of these trends are powerful and well-established, and there’s lots of very visible evidence for them.
Healthcare spending and obesity trends in the USA (source: Centers for Disease Control and Prevention)
We had a further example last week when Simon Stevens, the Chief Executive of the UK’s National Health Service (‘NHS’), made the same diagnosis.
Mr Stevens, in the job since April this year, published his ‘Five Year Forward View’ last Thursday. In it, he called out ‘a sharply rising burden of avoidable illness’ and ‘a mismatch between resources and patient needs of nearly £30bn a year by 2020/21’ as the key challenges the NHS now faces.
Mr Stevens’s job as a health chief is of course to address these challenges directly. We’re looking to find ways to invest our clients’ money to benefit from the solutions that people like him will employ. We think it is telling that we’ve found it much easier, so far, to find interesting opportunities in solving the first challenge, than the second.
Around 5% of the Fund is currently invested in three companies (DaVita, Fresenius and Novo Nordisk) which are helping to tackle the global obesity epidemic, which is perhaps the clearest manifestation of a lifestyle-related illness outside smoking-related illnesses. Shimano, a bicycle manufacturer which is classified under our Sustainable Transport theme, is also benefitting as the world wakes up to staying fit. We’ve also looked closely at a cluster of companies that provide healthy food (see our blog post from September 2013) and we’re monitoring the best ones for a possible entry point.
Finding good investments that focus on cutting costs in healthcare is altogether more difficult. We have one investment, HMS Holdings, which does so directly. Its software enables the detection of fraud and overpayment in the US health systems. Another of our holdings, Synergy Health, has a good track record in helping to reduce costs through outsourcing. But between them these two names are only 2.2% of the portfolio; and Synergy is currently a candidate for takeover, which would reduce that further.
We think that the healthcare industry may just not be ready for a meaningful attempt to control costs yet. As well as genuine patient care concerns, there are lots of powerful vested interests at stake. In the US, where the health industry has topped the list of lobbying spending since 1998[1], the savings envisaged by the Affordable Care Act in 2010 have hardly gotten started. But with healthcare costs continuing to run and run, the opportunities will be out there, so we’ll keep watching.
[1] Source: www.opensecrets.org/lobby
