SIMON BROWN: I’m chatting now with Kingsley Williams, the CIO at Satrix. They’ve got a new healthcare ETF, [the Satrix Healthcare Innovation Feeder ETF] currently an IPO listing later in the month. Kingsley, I appreciate the early morning time. A healthcare ETF – the story for healthcare is in one sense simple, and in the other sense compelling. We have an ageing population globally and new technologies are helping us live longer, deal with more health issues, and that makes for a really strong growth sector.
KINGSLEY WILLIAMS: Morning, Simon. Thanks. Yes, we find with investing in healthcare there’s quite an interesting investment case there, because we have actually seen human life expectancy increase over by about 25 years over the last century. So we’re living longer, and therein lies a virtuous circle that, as we live longer, we inevitably spend more on staying healthy. In fact there’s research out saying that the average American is probably going to spend three-and-a-half times more at the age of 70 than someone half that age.
As we live longer, we spend more on trying to stay healthy and remaining healthy – and therein lies an investment case.
SIMON BROWN: It’s a giant, healthcare. I think we often just sort of think of drug manufacturers, we think of hospitals and of course the practitioners, but there’s a whole lot more to it. Of course there’s biotech, there’s the equipment side, which is a fairly chunky sector within the healthcare space – and those are everything from MRI scanners to hospital beds.
KINGSLEY WILLIAMS: Yeah, exactly. What this particular ETF aims to give exposure to for investors is not just a sort of a clean carve-out of the healthcare sector, dominated by the big pharma companies that you would typically find dominating that sector, but actually looking below those dominant companies and looking at where companies are really at the forefront of innovation and developing new solutions to solving medical challenges. So that focuses on equipment and devices which dominate the index at about 40% of the exposure, [it] looks at biotech companies, so companies really in the pioneering space of biotech, and also services – and services are quite topical at the moment.
We’ve had a lot of trials take place over the last two years with developing the Covid vaccine, and there are companies that specialise in doing those clinical trials. They’re known as clinical research organisations, so they play a big role in ensuring that medicines and pharmaceuticals actually reach the shelves and can be dispensed to the wider population.
SIMON BROWN: And [the underlying] index: I was looking at the details around it and composition by country – it’s just over 70% in the US. I want to come back to that in a second. What surprised me was South Korea second, Switzerland, Belgium all floating around the sort of 3.5% to 5%. My sense around America at 70.8% – that is really where the compan[ies are] registered more than anything else – for example, Pfizer. Yes, they might be an American company, but of course they are selling their products globally.
KINGSLEY WILLIAMS: Yeah, exactly. That’s always the challenge when you look at companies that are US domiciled. If you look at the top 20 names in MSCI World, 19 of those are all US-based, and the other one is Swiss-based. But all those companies are global, serving the global population. We consume their products and services on a daily basis. So we live in a globalised world. Because [they are] 70% US-based doesn’t mean that they are only serving that market. But the US is a large market and is very much at the forefront of servicing an agEing population. So therein this ETF would obviously give you exposure to that dynamic playing out as their population ages and the baby-boomers move into retirement.
But we see another interesting case, in that even in emerging markets like China, with their low birth rates over the last few decades, they’ve also got an ageing population issue. Similarly they will start spending more on healthcare into the latter years of people’s lives.
But what’s interesting about the strategy as well, Simon, is that there are actually two very interesting dynamics at play with healthcare. One is that investors typically invest in healthcare because it tends to be a more defensive strategy because it’s going to be decoupled from the investment cycle. People are going to spend on healthcare when they’re sick, regardless of what the economy’s doing. So it has those nice defensive properties about it.
But, because of what this ETF specifically targets in looking at companies on the forefront of innovation, it also offers a growth dynamic to hopefully target above-average earnings growth relative to the market overall.
So those are two interesting features that the ETF offers.
SIMON BROWN: We’ll leave there. It’s still an IPO running until May 17. Contact your stock broker if you’re interested in that listing date, May 26; targeted [annual] total expense ratio coming in at 0.6%. That was Kingsley Williams, CIO at Satrix, talking around that new healthcare ETF coming. Certainly a sector which I think is worth having a very good look at in terms of putting it into your portfolio.