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Keith quoted in The Wall Street Journal – Popular Health-Care Funds May Extend Run


Popular Health-Care Funds May Extend Run

NEW YORK—The outcome of the presidential election offers another dose of encouragement for existing and prospective investors in health-care mutual funds.

President Barack Obama’s re-election, combined with the Supreme Court’s late June decision that the president signature’s Patient Protection and Affordable Care Act was constitutional, made the act’s implementation surer and removed some of the many uncertainties that surrounded the sector.

“Health care is still an excellent place to invest,” said Emerson Bell, a fee-only adviser with Dallas-based Halvorson-Boyd & Bell Inc. He has invested about 5% of client assets in health-care mutual funds for about 20 years, and the election just means more opportunity, he said. “More sick people will be able to see the doctor under Obamacare.”

Health-care mutual funds have gained 20.4% on average in the 12 months through Nov. 14, and are up 12.6% each year over the past three years, according to Morningstar Inc. By comparison, the broad Standard & Poor’s 500 stock index has gained 10.8% in the 12 months through Nov. 14.

Investors have plowed $4 billion into health and biotechnology funds, including exchange-traded funds, this year through the end of October, according to Lipper. That’s already more than double the nearly $1.9 billion the funds took in 2011, Lipper said.

The sector’s promise lies in aging Baby Boomers, said Mr. Bell, who oversees about $50 million in assets. Primary-care physicians will do extremely well under the health-care act, though specialists may suffer a bit, he said. But plenty of entrepreneurs will figure out how to make money under the new rules, he said

Mr. Bell invests in the $23.3 billion Vanguard Health Care Fund (VGHAX, VGHCX), which he likes for its diversification across health-care subsectors, as well as the T. Rowe Price Health Sciences Fund (PRHSX).

Keith Springer, president of Springer Financial Advisors, a Sacramento, Calif.-based registered investment adviser overseeing about $200 million, also invests about 5% of clients’ portfolios in the sector, depending on their risk profile and objectives. He began investing in the sector several years ago because he expected the aging population and President Obama to buoy health-care stocks. The election reinforced that conviction. He likes companies focused on seniors, such as health-care centers with built-in dialysis centers, he said.

Mr. Springer invests in the $1.1 billion Invesco Global Health Care fund (GGHCX) for smaller clients and in individual health-care stocks as well as iShares Dow Jones U.S. Healthcare Sector Index Fund (IYH) for those with more than $500,000 in assets.

Tom Roseen, a senior analyst at Lipper, said investors moved into the health-care sector earlier in the year because they felt it was defensive, but more recently they’ve been encouraged by earnings estimates and news.

As for the health-care act, it may hurt insurers, but will also have a positive effect as more people pay into the system, Mr. Roseen said. It’s a similar story for pharmaceuticals, he said, which may face pricing pressure, but could benefit from additional sales. He noted that biotechnology has been the largest contributor to the sector’s strong performance this year.

Andy Acker, portfolio manager of the $812 million Janus Global Life Sciences Fund (JFNIX), said he disagrees with the “knee-jerk reaction” that the health-care act will be very positive for hospital stocks and negative for managed-care companies. While more people will get insurance–a short-term positive for hospital stocks–the budget deficit may leave hospitals again targeted for cost cuts, he said.

While the consensus view is that managed-care companies will face higher taxes and regulatory barriers, Mr. Acker believes smaller players that can’t compete will be weeded out as having a global brand becomes more important. A smaller number should still do quite well as they get more patients, he said.

For biotechnology and pharmaceutical companies, it’s really status quo with the exception of the medical-device industry, which will be pressured when the medical-device tax takes effect in January, Mr. Acker said.

He focuses on companies that are creating products to address unmet medical needs as well as those that can help control health-care costs. Such companies should do well regardless of who is in the White House, he said.

The Janus fund is underweight large-cap pharmaceuticals, which face pricing pressure globally and high regulatory barriers along with a wave of patent expirations that has left them struggling to retain their high rates of growth, Mr. Acker said.



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