We have identified five key investment themes we believe will be the most important in driving returns from investing in healthcare stocks over the next 5-10 years: healthcare delivery disruption, innovation, prevention, emerging markets and outsourcing.

Looking at the first of these, demographic trends are driving increases in demand for healthcare but in the developed world the spend on healthcare is already a significant portion of GDP. This presents a real challenge and thus requires a shift to delivering healthcare more efficiently, moving from care in hospitals to much lower cost settings in the next few years. The pandemic is already accelerating this shift as administrators are attempting to treat patients while limiting their exposure to the in-patient setting. Some of the key technologies and services relevant to this theme include telehealth, remote monitoring, home healthcare, outpatient, online pharmacy and ambulatory service centres.

While innovation has always been critical to healthcare investing, our focus is where innovation enables better care for less cost.Due to the complexities of the existing healthcare systems, a principle focus is disruption through innovation, whether through novel drugs and devices or embracing technology and services to drive a shift in productivity. While innovation has always been critical to healthcare investing, our focus is where innovation enables better care for less cost. Drugs or devices that can prevent patients from going to hospital, or help patients leave hospital faster, can offer a great deal of value to healthcare systems. The best way to save unnecessary costs within healthcare systems is to prevent disease and infection. This is obviously relevant today with COVID-19 where the development of diagnostic tests and vaccines is an integral part of our fight against the disease. 

Healthcare spend in developed markets is significant, whereas that in emerging markets is relatively low so we believe spend here should increase dramatically over the next decade. Interestingly, we are seeing lessons learned from the inefficiencies that exist in developed markets being used to avoid the same challenges in emerging markets thereby generating fresh investment opportunities.

While not new, outsourcing is an important driver for an industry managing cost pressures. Running clinical trials and manufacturing currently incorporate significant outsourcing. Despite this, there remains a long-term growth opportunity with this theme over the coming years.

Looking ahead, the opportunities are striking, in our view, in those companies with novel and significant solutions to real world healthcare challenges, whether they be pharmaceutical, biotech, medical devices or healthcare services companies. Coronavirus has clearly shown what the biopharmaceutical industry can do: the current vaccines in development, and their value to society at large, are cases in point. It has also made us painfully aware that while we are witnessing 21st century treatment and cures, our global healthcare infrastructure is out of date. 

While novel and breakthrough therapies will always be of significance, it has become increasingly important that patients who would most benefit are able to be easily seen, diagnosed and treated. Savvy consumers are demanding a modern-day healthcare marketplace, any patient certainly deserves that and clinicians on the front line have more than earned it. For all these reasons, and more, change is afoot and as such plenty of opportunities for healthcare investors across the market-cap spectrum lie ahead.