Global Allocation Insight

Making healthy choices

Sep 19, 2018

Strong and sustainable growth prospects for healthcare companies
present appealing opportunities for long-term investors.

At $3.5 trillion per year, total healthcare spending (public and private) makes up roughly 20% of the U.S. economy. The nation’s 80 million baby boomers provide a stable source of ongoing revenue growth for healthcare companies throughout the value chain. Demographic tailwinds are widely expected to continue to propel this secular story in the United States.

We anticipate increasing future growth opportunities for U.S. healthcare companies given a strong U.S. economy coupled with the expansion of healthcare coverage from recent reform initiatives. Companies best positioned to thrive in the current evolving policy landscape are those with proven track records for containing medical costs and a focus on providing vertically integrated, consumer-directed, value-based services with greater price transparency to customers.

Outside the United States, healthcare spending is increasing as the burden for providing healthcare is shifting from public to private balance sheets, driving stronger demand for a higher quality of care and hence, higher prices for healthcare goods and services in the private sector.

In the emerging markets, healthcare spending is growing more than twice as fast as in developed markets. Increasing patient longevity and a shift in patient mortality being driven more by chronic versus infectious diseases are creating more opportunities for private companies that provide a continuum of care in these countries.

Global healthcare spending on the rise
Total global health expenditure continues to grow, with an increasing proportion attributable to emerging economies.

Global healthcare spending on the rise

Source: Credit Suisse Research, Siemens, 2015.

The BlackRock Global Allocation Fund holds overweight exposure to the healthcare sector with a heavy emphasis on providers and managed care. Managed care operators, and to a lesser extent hospitals, have more pricing power in an industry that is highly consolidated. Companies benefitting from low marginal unit costs due to economies of scale tend to be the winners in this space.

Additionally, we are increasingly positive on pharmaceutical and biotech companies as the re-pricing of these stocks due to the overhang around drug prices appears to have run its course.

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Russ Koesterich
Portfolio Manager, Global Allocation
Russ Koesterich, CFA, JD, Managing Director and portfolio manager, is a member of the Global Allocation team within BlackRock's Multi-Asset Strategies ...
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