The US healthcare sector is being favoured over pharmaceuticals in the US market due to the uncertai...
The US healthcare sector is being favoured over pharmaceuticals in the US market due to the uncertain results of the upcoming presidential election.
Simon Melluish, manager of the Gartmore American Growth Fund, says Gartmore is overweight healthcare, particularly in healthcare services and technology. Gartmore is overweight compared to the Standard &Poor's 500 Index in these areas, more so than in pharmaceuticals because, he says, they are not as affected by political uncertainty. Pharmaceuticals could be adversely affected by the election result as Al Gore favours a universal coverage law which would enable pensioners to benefit from state health cover, which would limit the pricing power of pharmaceuticals.
Melluish, who is also head of US Equities at Gartmore, favours hospital stocks for two reasons; enrolment in hospital management organisations has fallen over the past year due to increasing affluence and, secondly, less strict corporate packages. He says the power of hospitals is increasing as a result of a better pricing environment.
Gartmore is overweight in HCA, one of the largest US hospital companies. Melluish says: "HCA has been restructured and has had unexpected earnings growth. A year ago, analysts said this stock would be priced at £1.65; it is now worth £1.80."
According to Melluish, Medtronic and Guidant are also major players in the healthcare market. These companies develop, manufacture and market cardiac rhythm control devices such as pacemakers, defribulators and stents.
While Threadneedle is not overly positive on healthcare services due to the sector's past underperformance, it too is favouring Medtronic. Guy Thornewill, an analyst on the UK desk at Threadneedle, says medical device companies are showing good growth rates.
He says there is a good market for stents, which has shown high growth over the past two years. Medtronic has implants in the pipeline for Parkinson's and Alzheimer's diseases, as well as spinal cage implant technology that allows spinal reconstruction and is growing at around 20%pa, he says.
Tana Focke, fund manager of the Smith and Williamson North American Fund, is overweighting healthcare but is neutral on pharmaceuticals. She says: "I like the healthcare sector as it is one that everyone is showing an interest in. We have an increasingly ageing population, and people are now more concerned about health and preventative medicine. The healthcare sector profits as people want to improve their quality of life."
Focke says she is not seeking greater exposure in pharmaceuticals due to the difficulty in evaluating a company's drug pipeline and the fact that many important drugs are coming off patent.
Healthsouth, a healthcare company that provides inpatient and outpatient services, diagnostic services and rehabilitation, is one stock favoured by Focke, due to its primary objective of getting people back to work, thus making it a favourite with insurance companies.
Focke is also upbeat about medical supply companies, such as Abbott Laboratories. With regards to supply companies, the more specialist they are, the more exciting they are, she says.
Succeeding co-founder Simon Rogerson
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