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COLUMN-Healthcare: A remedy for long-term investors

Mon 4th August, 2014 8:03pm
(The opinions expressed here are those of the author, a 
columnist for Reuters.) 
    By John Wasik 
    CHICAGO, Aug 4 (Reuters) - For healthcare, gray is the new 
    The fastest-growing segment of the global population is aged 
60 and over, according to the United Nations Department of 
Economic and Social Affairs. That slice of humanity is expected 
to increase by 45 percent by 2050. 
    The surge in the older population has contributed to a wave 
of new product introductions in biotechnology, medical devices 
and pharmaceuticals, and expansion of healthcare services. 
    In addition, healthcare is a remarkably durable sector for 
investors, soldiering on despite periodic market downturns, like 
the one seen last week when the S&P 500 index had its worst week 
since 2012.  
    Overall, there's a bounty of money being spent on healthcare 
that's unlikely to be impacted by other economic trends.  
    One of the best ways to own the biggest players in the 
healthcare industry is through the Vanguard Health Care ETF 
 VHT.P , which holds global giants like Johnson & Johnson 
 JNJ.N , Pfizer Inc.  PFE.N  and Merck and Co.  MRK.N .  
    Charging 0.14 percent in annual management expenses, the 
Vanguard fund, which is almost entirely invested in U.S.-based 
stocks, gained 20 percent for the 12 months through Aug. 1, 
compared with 15 percent for the S&P 500 Total Return Index. 
Long-term, the Vanguard fund has been a solid performer, 
averaging 10.5 percent annually for the decade through Aug. 1. 
That compares with an average 7 percent return for the MSCI 
World NR stock index.  
    For more non-U.S. exposure, consider the iShares Global 
Healthcare ETF  IXJ.P , which charges 0.48 percent for annual 
    The iShares fund has about 60 percent of its portfolio in 
North American stocks, with the remainder in European and 
Asian-based companies such as Novartis AG  NOVN.VX , Roche 
Holding AG  ROG.VX  and GlaxoSmithKline PLC  GSK.L . The fund 
gained 19 percent over the 12 months through Aug. 1.  
    For a more focused play on leading-edge biotech and genomic 
companies, the First Trust NYSE Arca Biotech Index ETF  FBT.P  
samples some of the hottest companies in that sub-sector. 
Holdings include industry leaders Gilead Sciences Inc.  GILD.O , 
Biogen Idec Inc.  BIIB.O  and InterMune Inc.  ITMN.O .  
    The First Trust fund was up nearly 25 percent for the 12 
months through Aug. 1; it charges 0.60 percent in annual 
    Since most institutional portfolio managers have seen the 
merits of healthcare stocks for years, there are probably few 
bargains available, although some sectors are pricier than 
others. Biotech stocks, in particular, are in high demand, 
although they experienced a sell-off earlier this year. 
    "On the other hand," Fidelity Investments analyst Eddie Yoon 
said in a recent report, "some large-cap, stable growth 
companies across the (healthcare) sector continue to appear 
attractive, based on their stable underlying business 
    Unlike other sectors such as consumer discretionary that are 
directly tied to overall economic conditions, healthcare is 
often insulated from broader economic trends. When the S&P 500 
index dropped 37 percent in 2008, the Vanguard fund only lost 23 
percent; the First Trust fund was off 18 percent. While biotech 
stocks tend to be volatile, the mainstream healthcare companies 
are seen as defensive holdings and more immune to broader market 
pressures and poised for bankable growth.  
    Long term, the more volatile biotech stocks of today may be 
tomorrow's winners. The growing science of genomics will allow 
biotech companies to customize drugs to a patient's genetic 
make-up. Just three years ago it cost $95 million to sequence a 
human genetic code. Now it costs about $4,000, with the price 
dropping every year. That will translate into more precise 
treatments with fewer side effects. 
    There are several concurrent waves of innovation in health 
information technology, diagnostics and delivery of services. 
More patients can be monitored and treated at home with the 
improvement in information technology. Diseases are being 
discovered and treated earlier, which means fewer 
    In the United States alone, healthcare spending is buoyed by 
the $3 trillion spent annually on Medicare patients. While 
policymakers say this number is unsustainable and must be reined 
in, that does not change a key fact: Some 10,000 Baby Boomers 
are turning 65 every day. They will continue to demand the best 
drugs and treatments.  
 (Follow us @ReutersMoney or at 
 Editing by Lauren Young and Leslie Adler) 
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