Is 2022 the Year of Investing in Healthcare?

Healthcare asset classes have long been seen as a safe haven in turbulent times, Covid-19 and climate change conspire to turn the world on its head. 

The opportunity of governments increases spending to provide their populations with infrastructure and solutions, from the safety and security of government-backed real estate assets such as supported living and services, long term care facilities with capabilities for home healthcare, new developments in medicines and vaccines and digital healthcare solutions create disruption in traditional markets.

From the growing impetus of net-zero and ESG to the new sustainability disclosure requirements and green bonds, healthcare is well-placed to meet the demands of the future and create sustainable opportunities for investors seeking capital preservation and growth. 

In a post-pandemic cycle of higher inflation and rising interest rates, healthcare assets will continue to deliver sustainable opportunities for us all. 

As we close 2021, the world is in various stages of recovery from the global COVID-19 pandemic. Notably, though, the healthcare sector has performed well since the start of the crisis, it has lagged the broader market as consumer-oriented and information-technology sectors benefited more from the reopening of the economy. 

Biopharma and certain rare diseases are generating a rich opportunity set for specialist investors.

The Biggest Winner of 2022 will be Healthcare

While COVID-19 disruptions could continue for months or even years, I believe strong fundamentals and robust innovation will fuel growth across healthcare sectors in the year ahead and that the biggest winner of 2022 will include the opportunity for capital preservation and growth will be healthcare. 

A breakthrough innovation in the biopharma industry—particularly in oncology, immunology, and certain rare diseases—is generating a rich opportunity set for specialist investors. Key medical-technology companies are also facilitating significant drug development and are benefiting from the increased spending and proliferation of new drug candidates. 

In addition, diagnostics companies are helping with widespread COVID-19 testing while also creating more convenient routine medical tests and, increasingly, enabling early cancer screening.

Importantly, the overall delivery of healthcare continues to evolve. The US, for example, is experiencing a decades-long transition toward a fee-for-value payment system from a fee-for-service approach. This shift encourages new business models and supports substantial growth potential for lower-cost care models.

These tailwinds across the various healthcare subsectors, coupled with strong valuation support, create a positive outlook for this sector than ever before.

Healthcare Companies are Well-Positioned to Solve One of the Greatest Challenges: Rising Healthcare Costs

The healthcare infrastructure subsector is also exiting the pandemic in a better position than it entered. The early stages of the pandemic were challenging for business models, such as post-acute care, hospitals, dialysis, and others. Even with these challenges, managed-care companies performed well initially, as an overall reduction in healthcare utilization resulted in falling costs and rising profits.

I believe healthcare-service companies are well-positioned to help solve one of the greatest challenges we face: rising healthcare costs. 

One of the silver linings of the COVID-19 pandemic is that I feel it has accelerated a structural change in human behavior, as customers are now willing to consume healthcare in lower-cost settings and will become less reliant on hospitals. 

This shift in behavior could benefit companies involved in government-backed real estate assets for supported living, home health care, ambulatory care, IT solutions, and telehealth. 

This transition is part of a broader trend that will see the healthcare sector evolve from fee-for-service models to fee-for-value models. In recent years, we’ve seen business models emerge in which primary care physicians and other healthcare providers work together to provide care to individuals throughout their healthcare journey—potentially improving outcomes and reducing costs. 

Importantly, risk has shifted from payers to providers, allocating primary-care physicians a fixed-dollar amount to treat patients, intending to incentivize more prudent, cost-effective care.

So will 2022 be the year to invest in healthcare? It seems so. 

About the Author
Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).
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