Healthcare Demand Will Grow and Grow (part 2)

Doctor otologist palying with his patientLast week I discussed the demographics driving American use of healthcare and its new technology. On average, we are living longer while generally enjoying better health. Many of us will eventually feel somewhat bionic through our high tech ceramic or metal spare part implants.

In 1960 when current statistics began, healthcare was 5 percent of total US gross domestic product (GDP) and we spent $146 per person. In 2016, we spent $3.3 Trillion or over $10,300 per US person, 17.9 percent of GDP. (National Health Expenditure Data, www.CMS.gov.) Hard to believe that geometric progression!

It is safe to predict demand for healthcare will be growing for another few decades. How can you make money on this monstrous trend? First, if you own an S&P 500 Index mutual fund or exchange traded fund (ETF), healthcare company stocks represent 14.39% of that total value. This proportion is third compared to Technology at 22 percent, and Financials at 16 percent.

But if you desire to have a greater percentage of your money invested in this sector, you have plenty of choices: mutual funds, ETF’s and of course, individual stocks. If you still have company retirement plan money, there is a chance you have a healthcare fund in your mix. In some investing platforms, the Custodian also provides options to invest in subcategories of Healthcare. Fidelity has several in its Select funds with Health Care as a general one, but also Biotech, Medical Tech and Devices, Medical Services, and Pharma. Each of the latter contain fewer stocks and will have different performance.

Year to date through Friday, August 10, the broader Health Care fund has gained 24 percent, while the others have risen by 15, 23, 17 and 11 percentages respectively. While the S&P 500 is higher by over 6 percent, the health care funds are winning the race so far. It is definitely not always that case.

If you prefer ETF’s with their lower internal costs that trade like stocks, you have many choices also. This year, the top performer thus far is SPDR S&P Health Care Equipment (symbol XHE). Through last week, it has returned over 26 percent. It recently contained 71 stocks and is definitely oriented to growth (rather than value).

Next highest is Invesco Dynamic Healthcare Sector Portfolio (PTH) at 24 percent gain. It always contains at least 30 stocks, currently has 50, and out of all healthcare companies, it has a selection of those with the highest trend of price momentum. This kind of ETF is known as Smart Beta or as having Active management rather than being a Passive set-it-and-forget-it group of stocks.

By the way, since so many of us are needing physical therapy—I started yesterday–take a gander at U.S. Physical Therapy, Inc. (USPH). It is valued at $1.4 Billion, it makes a profit, and its stock has risen 55 percent in 2018 through last Friday.

Let me remind you that all of these could crash and burn by this Friday so I am not recommending you buy them without research or consultation with a professional. My point is that, as a greater percentage of Americans spend more money on fixing our bodies and minds, this sector will likely perform relatively well. We all might have an opportunity to get some of our healthcare dollars back in the form of good investment returns.

August 16th, 2018|Categories: Investment Management, Retirement, Stocks|