«There is a steady long-term growth for healthcare companies»
15.04.2021
Mr. Sjöström, how do you review the first quarter on the healthcare sector?
The first quarter of the year witnessed the emerging signs of the post-Covid reality, with new concerns about inflation and rising interest rates. Market jitters quickly followed, starting a rotation in favour of value (versus growth), which benefited cyclical and recovery plays, rather than momentum stories, such as biotech. The overall markets ended up 4.6 percent for the quarter, driven mainly by large caps and value. Healthcare lagged, as the recent momentum seen in small- and mid-cap biotech, medtech, and digital-health names waned. The MSCI World Healthcare Index ended the quarter up marginally (0.7 percent), while small caps were up more modestly (0.3 percent as per the Russell 2000 Healthcare Index); the difference was mainly the result of a late March recovery. Most industries closed the quarter with performances near the healthcare indices, though services moved up more significantly. We also note that emerging-market healthcare names dropped more sharply, with the MSCI Emerging Markets Healthcare Index down 4.6 percent.
What do you expect in the coming months?
We expect markets to remain challenging for the foreseeable future. The tension between the good news - Covid and the recovery - and the bad news - inflation, debt, (lack of) recovery, and political unrest - will generate volatility in the equity markets. In addition, given the strong run we have been experiencing since late March 2020 and the correspondingly generous valuation, we anticipate the risk on the downside to be greater than on the upside.
How do see the healthcare sector compared to global markets?
Thus, we remain cautious on global markets and expect healthcare to be a good place to invest. Despite the recent underperformance, a consequence of the rotation out of momentum plays, we expect the sector’s strong fundamentals to carry the day. Innovation, digitalization, and the growing demand in emerging economies will continue to fuel steady long-term growth for healthcare companies.
Do you still prefer small- and mid-caps over big pharma?
We remain strategically committed to companies driven by innovation: mainly small- and mid-caps. From an industry perspective, given the current difficult market environment, we favour maintaining a neutral exposure at this point.
Link to disclaimer
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. Michael Sjöström graduated in 1987 from the University of St. Gallen with an MBA in Finance and Economics. He obtained his CFA charter in 1996.