Benefiting from the diverse characteristics of the healthcare sector

I am responsible for the portfolio management of the new Bellevue Diversified Healthcare Fund and support the pharmaceutical research effort. That fits perfectly with my professional background. After my Ph.D in neurophysiology I started my career as a scientist in a biotech company before working as a sell- and buy-side healthcare equity analyst in London and Zurich and most recently as a portfolio manager for a global healthcare fund. I am lucky to work in this team with its broad sector knowledge, including regional and subsector expertise, for instance in medtech or the Asian markets.

We see this strategy as most attractive for institutional clients given the expected lower volatility, more defensive nature, and broad healthcare exposure. Over the long-term, our vision is that the fund could become a core holding within a client’s portfolio, whether that be institutional or retail investors. 

We have adopted both an bottom-up and top-down investment approach, with performance expected to be driven by allocation decisions and stock picking. For this we have developed a bespoke style matrix, and are using this as one of our pillars for allocation. Our aim is to be able to benefit from the structural growth within healthcare, but also to be supported by the defensive quality and deep value within the sector. 

Along with style, we are actively managing the fund using subsector allocation to take advantage of the low correlation between healthcare industries. We have a diverse exposure across subsectors, but currently hold small overweight positions in pharmaceuticals and biotech, and underweight positions in medtech & services, and life science tools. 

Our third allocation pillar is structure, this is whether a stock is within the index at a high weight (core), low weight (periphery), or outside the index. Tail companies could be small biotechs in the developed world, or quite large emerging market healthcare companies. 

We include ESG criteria upfront, and also engage with our holding companies through an internally developed survey. At a portfolio level, we monitor the funds weight in the different MSCI ESG rating buckets and compare this to the healthcare index and peer funds. 

It is good time to take a step back. For most countries, we would continue to expect healthcare spending to outpace GDP. With broadly inelastic demand for healthcare products and services, we would expect continued growth even in a global economic slowdown. Most healthcare sub-industries are not experiencing supply issues, and demand remains elevated as we work through a backlog created by Covid. We therefore expect continued robust volume metrics in healthcare. On top of this, scientific advancements are at a high pace, and governments remain willing to pay up for innovation. These factors make the sector defensive in nature, but with strong structural and disruptive growth opportunities. We see this combination as particularly attractive for investors at present.