An exchange traded fund that tracks health and technology themes can help diversify and improve investment portfolios.
In the last webcast Investing for Tomorrow Today: Exploring the Future of HealthcareMatthew Cohen, Head of ETF Specialist Team, Principal Global Investors, highlighted the continuing demand for innovations that will continue to deliver results for investors over the long term. Overarching issues such as an aging population, a growing health economy and the fight against chronic and rare diseases will, for example, further fuel the demand for innovative health services.
By the 2030 fiscal year, around 10,000 people will be 65 years old every day. From fiscal year 2018 to 2022, global health spending is expected to grow at an average annual growth rate of 5.4% compared to a projected global GDP of 2.1%. The cost of caring for people with chronic conditions has now risen to $ 1.1 trillion, or 10 times more than for non-chronic patients. In addition, over 7,000 rare genetic diseases have been identified, less than 5% of which benefit from an FDA-cleared treatment method.
Steve Jones, Client Portfolio Manager at Principal Global Systematic Solutions, highlighted the growing health needs of an aging population, particularly through improved health services that have extended the life expectancy of the world’s population. In the early 1900s, many were lucky if they lived until their mid-30s. Today the average lifespan worldwide is 72 years. While millennials shape many industries, the senior crowd rules the district in the healthcare sector. Looking ahead, the number of Americans over 65 is expected to nearly double to 72.1 million by 2030.
Improvements in technology and better quality of life have led some to say we are healthier than ever, but Jones cautioned that it is a tug-of-war between less “bad” and more sedentary lifestyles. Indications of healthier choices such as smoking less and exercising more have been offset by sedentary lifestyles in the United States and many rich countries.
Jones also noted that wealthy nations continue to spend a lot on health care. Healthcare is expensive, but some may not know how much more expensive it is in the US than abroad. While this can indicate inefficiency, it can also indicate willingness to pay and the ability to pay, especially domestically.
Jeffrey Schwarte, Portfolio Manager and Head of Systematic Solutions, Principal Global Systematic Solutions, argued that having a broad fund product with multiple biotech names is a better way for investors to get positive results through the FDA approval process. Not all new drugs are approved, so having a broad network can help investors better capture potential breakthroughs. For example, only 63% of new drugs go through Phases I through II, 30.7% of studies go through Phase II and III, 58% of studies go through Phase III to NDA / BLA, and 85% are through NDA / BLA for approval. Overall, only 9.6% of the new drugs can successfully transition from phase I to FDA approval.
“With unpredictable, high error rates in clinical trials, a broad basket approach can reduce downside risk while capturing upside alpha,” said Schwarte.
Consequently, investors can look to assets like that ETF (Principal Healthcare Innovators Index) (Nasdaq: BTEC) Access to early-stage, small capitalization healthcare companies. These are primarily biotechnology and life sciences, which have the potential to develop cancer cures, develop new medical technologies, or drive other medical advances. In addition, the ETF provides access to specialized healthcare solutions and offers an efficient, systematic approach to identifying and selecting smaller healthcare companies that many investors neglect.
Financial advisors interested in learning more about the future of healthcare can Watch the webcast here upon request.
