«Healthcare is a steady grower»
Mr. Sjöström, how do you review the second quarter on the healthcare sector?
Healthcare made a slight comeback during the second quarter, outperforming global markets, as the MSCI World Healthcare Index rose 9.1 percent, compared with 7.4 percent for the MSCI World Index. All subindustries contributed about equally to the strong performance. Notably, small- and mid-caps finished the quarter strongly, although they were still under pressure during April and May; this performance mainly benefited biotechs, in particular gene-editing and vaccine players.
Did you observe anything unusual in the second quarter?
Over the quarter small- and mid-cap healthcare names lagged significantly, with the Russell 2000 Healthcare Index rising only 2.7 percent. At this time, the small- and mid-cap rebound we saw in June looks more like a pause in the market rotation from momentum to value than the beginning of a new trend. Looking at the globe, we note that emerging-market healthcare companies performed strongly after a cautious start to the year. The MSCI Emerging Markets Healthcare Index rose 14.1 percent, bringing year-to-date performance to 8.9 percent. This growth trailed the MSCI World Healthcare Index, which increased +9.9 percent year-to-date only slightly.
How do you review the valuations?
We expect markets to continue to fluctuate between the good news - Covid and the recovery - and the bad news - inflation, debt, (lack of) recovery, and political unrest. Given the solid year-to-date performance after the Q2 run, we would not be surprised to see weaker markets over the summer, as valuations suggest much of the good news has been baked into the financial cake. Thus, we remain cautious.
What do you see as the main themes?
We see healthcare as a good place to invest for the short run - it is a safe haven - as well as for the long - it is a steady grower. The main themes of its long-term growth remain innovation, digitalization, and the growing demand in emerging economies. We believe these themes are best reflected in the small- and mid-cap spaces, although larger caps represent a more stable opportunity in the short term.
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Michael Sjöström is Co-Founder and Chief Investment Officer (CIO) at Sectoral Asset Management. Mr. Sjöström founded Sectoral Asset Management with Jérôme Pfund in 2000. Prior to establishing Sectoral, Mr. Sjöström worked for two Swiss banks and, in 1993, joined Pictet & Cie in Geneva as a pharmaceutical analyst. From 1994 until October 2000, he was the Portfolio Manager of Pictet Fund-Biotech and head of the pharma analyst team. Mr. Sjöström graduated in 1987 from the University of St. Gallen with an MBA in Finance and Economics. He obtained his CFA charter in 1996.