Fund Buyer Index

Gauging opportunities in healthcare innovation

Posted in Dec 2019
by Elena Johansson

Innovative healthcare technologies receive attention as they are expected to satisfy demand of an increasingly ageing and wealthier population in the future, and could potentially disrupt the sector.

Technologies, including robotics, genome sequencing, biological engineering, healthcare trackers and artificial intelligence, could transform the sector by making current activities obsolete and creating new health services, says Fouad Benseddik, director of methods and institutional relations at Vigeo Eiris.

Taymour Tamaddon, portfolio manager at US investment management firm T. Rowe Price, points as examples to companies using robotic technology.

He explains that Intuitive Surgical, a US company, is able to bring “vast improvements” in clinical outcomes and patient recovery times with its robotic products.

These allow minimally invasive robot‑assisted surgery for operations including orthopaedic hip replacements, cardiothoracic surgery and neurosurgery.

Another US company, Stryker, is rapidly increasing market shares, Tamaddon says, because of its combined 3D printing and robotic technology, with which it has specialised in hip and knee replacement surgery.

Performance of disruptive technology funds

Anthony Ginsberg, managing director at GinsGlobal Index Funds, explains a big advantage of such technologies is their ability to reduce healthcare costs by, for example, lowering recovery periods in hospitals.

“Governments and industry are under pressure because of the rising costs, and the US healthcare premiums, essentially, have almost doubled in the US in the last decade,” he says.

Innovative investment themes which play on megatrends are increasing.

UK asset manager Schroders recently unveiled the Global Transformation Range of funds which will seek out long-term opportunities, including, next to healthcare innovation, themes such as urbanisation, climate change, disruption and energy transition.

Healthcare innovation is also a theme in MSCI’s recently launched disruptive technologies index.

HANetf, an independent provider of UCITS exchange traded funds (ETFs), together with Gins Global Investment Management, developed the HAN-GINS Indxx Healthcare Innovation UCITS ETF (WELL).

The ETF tracks the Indxx Advanced Life Sciences & Smart Healthcare Thematic Index, which measures the performance of listed companies involved in the advanced life sciences and smart healthcare sector.

The dollar-denominated fund, which was launched in April 2019, has 101 holdings.

The themes in the sub sectors are heavily weighted to medical devices, making up 45%, followed by biological engineering with 28%, neuroscience (11%), robotics (4%), genome sequencing (4%), healthcare trackers (2%) and others. Regionally, it has a focus on the US with 69%.

Benseddik alerts however that there is no certainty of disruptive technology funds to outperform their peers.

“Uncertainty about potential applications, capital intensity and societal acceptability influence return on investment cycles. Here as elsewhere, it is necessary to be attentive to speculative bubbles,” he notes.

Daniel Koller, head investment management at BB Biotech, a Swiss investment company, says: “Getting in early when an investment opportunity starts taking off with massive upside potential is every investor‘s dream, but often that also exposes investors to unexpectedly high risk.

“In the health industry, gene therapies seem to be up and coming, but many of these approaches are in early clinical development and will take years to reach the market, if they even get that far.”

Ethical, social and environmental considerations

Some of these technologies can also run counter ethical and social considerations.

Ginsberg says that the company discussed with index provider Indxx to limit any unethical companies in the holdings.

“If they are not basically meeting crucial standards, they should not be included,” he believes.

Benseddik explains that these technologies need to be considered in a wider context.

“The same technology can be used to empower people and make society better and more inclusive as well as alter the psychological integrity, independent judgment of individuals and threaten freedoms, privacy and job quality.

“It is therefore essential to think and manage investment in disruptive technologies in terms of both economic and financial terms, but also in terms of social and environmental risks.

“It is a multidimensional challenge that concerns respect for human rights, the development of human resources and skills, the responsible management of restructuring, business ethics and the control of the societal impacts of technological change,” Benseddik says.

Vigeo Eiris, which is an independent provider of environmental, social and governance research and investment services, recently developed a criterion, which rates companies on their commitment and ability to use artificial intelligence in a responsible manner.

Last Word Research – top 10 biotech funds and their performance



Originally posted in Expert Investor Europe

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