by Craig Higson
There is little doubt 2020 will be remembered as the ‘COVID-19 year’.
The virus and its impacts have been felt across the globe, and as we approach year’s end, promising developments in the race for a vaccine dominate the news. It seems at times the whole world looks longingly for the opportunity to return to something resembling our ‘normal’ lives.
Like the rest of our daily lives, our finances have not been immune to the effects of COVID-19.
Even the suggestion of a successful vaccine trial has in recent weeks been enough to see a surge in the share prices of not only the pharmaceutical companies involved in developing these treatments, but also other beaten-down sectors such as travel and hospitality. So, what is the impact on investing, and are there opportunities to introduce a ‘COVID recovery’ element into your portfolio?
Even before COVID-19, the Organisation for Economic Co-operation and Development (OECD) was forecasting health expenditure would outpace GDP growth over the next 15 years in almost every OECD country. Health spending per capita was predicted to grow at an average annual rate of 2.7% across the OECD and reach 10.2% of GDP by 2030, up from 8.8% in 2018, according to the OECD’s Health at a Glance 2019: OECD Indicators report [1].
The amount spent on health by selected developed world countries is shown in the table below. According to the OECD report, for Australia the number is 9.3%, slightly above the OECD average.
Given the impact of an ageing population, coupled with the continued development of new (and more expensive) treatments and therapies, one could argue the outlook for the healthcare sector, with or without the impact of COVID-19, continues to be positive.
So, is there a simple-to-access, efficient and cost-effective way to implement exposure to the healthcare sector into an investment portfolio?
One option is a healthcare-focused exchange traded fund such as the BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG). DRUG aims to track the performance of an index (before fees and expenses) that comprises the largest global healthcare companies (ex-Australia). A listing of the top 10 holdings in DRUG is below (as at 30 November 2020):
Source: BetaShares, as at 30 November 2020.
You will notice one of the top holdings in this fund is Pfizer, which recently prompted a general stock market surge when it announced its COVID-19 vaccine was testing a 90% success rate [2]. Other vaccine-related stocks in DRUG’s portfolio are Moderna [3] and AstraZenaca [4], both of which have reported promising results from the testing stages of their COVID-19 vaccine.
It is also worthwhile pointing out DRUG is currency-hedged, seeking to minimise the effect of currency fluctuations on investment returns.
With global spending on healthcare expected to reach US$18.3 trillion by 2040 [5], an allocation to DRUG may be a worthwhile prescription for many investor portfolios.
Investment risks in relation to DRUG include market risk, international investment risk, healthcare sector risk and concentration risk. For more information on risks and other features of DRUG, please see the Product Disclosure Statement, available at www.betashares.com.au.
ENDNOTES
- OECD (2019), Health at a Glance 2019: OECD Indicators, OECD Publishing, Paris, https://doi.org/10.1787/4dd50c09-en.
- https://www.theguardian.com/business/2020/nov/09/stock-markets-covid-vaccine-ftse-100-coronavirus.
- https://www.abc.net.au/news/2020-11-17/moderna-vaccine-trial-shows-almost-95-per-cent-efficacy/12889554
- https://www.smh.com.au/business/companies/astrazeneca-hopes-to-deliver-covid-19-vaccine-in-january-20201106-p56c06.html
- http://www.healthdata.org/news-release/global-spending-health-expected-increase-1828-trillion-worldwide-2040-many-countries
