With improvements to healthcare and diet over the past few decades, most nations worldwide face populations that are living longer. They also have ‘ageing population’ demographics – meaning that older people (say over 60) are becoming a larger % of the population overall. This is widely expected to lead to continuous growing demand for healthcare services.
The tricky part for investors is picking which stock is likely to win from the growing industry. Any one or two companies can face unexpected problems. You would certainly hate to invest in the growing industry, only to fail to benefit from it. For example, Fisher & Paykel is a great company, but is involved in patent litigation that is extremely expensive and may have an impact on its ability to sell its product (should it lose its case).
Is the right solution to buy Fisher & Paykel shares? To sell them? If it’s the growing industry you’re looking to benefit from, maybe you could consider owning a basket of healthcare stocks. And the easiest way to do that just might be via the ISGLHLTCA/ETF (ASX: IXJ).
The iShares Global Healthcare ETF (ASX: IXJ). ETF = Exchange Traded Fund. It’s just like a managed fund, except instead of sending your cash to the manager, you just buy ‘units’ (shares) in the fund. The Global Healthcare ETF invests in a basket of companies such as Johnson & Johnson, Pfizer, Sanofi, Bayer, and more.
68% of the fund’s assets are invested in the USA. 9% are in Switzerland, 5% in the UK, 5% in Japan, and lesser percentages in Germany (4%), France (3%), Denmark (2%), and Australia (2%) among others.
This ETF pays around a 1% annual dividend and charges 0.48% per annum in management fees. The management fees are taken out of the fund’s assets, so you don’t have to contribute anything directly. It does mean that, all else being equal, performance of this ETF will fall slightly behind the index itself, due to the fees.
The Global Healthcare ETF has returned 11% per annum over the past 10 years, which is an incredible return from an index, but its returns since inception are much lower at 4.3% per year. Likely the returns over the past 10 years have been inflated by ultra-low interest rates, which generally lead to higher stock prices and allow companies to fund more acquisitions or buybacks.
Going forwards, I would expect the returns for the index to be much closer to 4% than 11%, and it is possible that there may be a negative returns in some years due to higher interest rates or currency fluctuations (since you buy in Australian Dollars, but most of the fund’s assets are in US Dollars or Euro). Were I to buy units in the Global Healthcare ETF, I would look to split my purchase up into several parcels over a couple of years.
Still, for those looking to get a basket of exposure to global healthcare companies, it’s hard to go past the Global Healthcare ETF.
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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.