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By Andrew Leckey
Health care investing is making a comeback in 2011.
The industry has shaken off irrational fears about reform and refocused on the opportunities that an aging population provides. Compared to industries more closely tied to the economy, it isn't scary at all anymore.
Health care and biotechnology stock funds are up 17 percent this year and 35 percent over the past 12 months, according to
Stars have emerged in healthcare:
"A worsening outlook for the global economy favors defensive sectors, and health care falls into that bucket," explained Andy Oh, research analyst and portfolio manager of the $583 million
"Despite the headwinds that the health care industry faces, there are ways of making money and a diversified fund is one of those," Oh said. "You don't have to worry about stock-specific risks when you put money in a health care sector fund."
Wheeling and dealing among companies is revving up, a potential boost for stock prices.
"Besides the investor retreat to defensive, non-discretionary sectors, the mergers-and-acquisition activity is strong due to cheap health care valuations and companies with cash on their balance sheets," said Michael Gregory, portfolio manager of the $43 million
Big pharmaceutical companies are about to face the largest patent expiration in the industry's history and will need to fill the gap of lost income, Gregory added. Buying another company that has hot products accomplishes that rather quickly.
"There are high barriers to entry in health care, and the age demographics are strongly in its favor," said Vijay Shankaran, senior portfolio manager of the $49 million
Health care accounts for about 18 percent of the U.S. Gross Domestic Product, and such importance means investors must keep an eye on it, said Shankaran. However, it is too simplistic to say health care is a terrific industry to invest in all the time, he warned, since having exposure to its poor performance in 2009 and 2010 was not a positive experience.
Shankaran sees the cup as either half full or half empty, depending on conditions. The fact that his fund has long and short holdings enables him to "modulate" exposure to health care, in effect betting for or against it.
He likes stock of
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