On a global scale, this investment universe represents about a third of the healthcare sector’s total market cap, but measured in terms of value created, it captures more than 90% of the aggregate added value, according to the manager.
The medtech subsector in particular has been one to watch as the stocks can present entirely new business opportunities, he says.
‘What makes us particularly optimistic about the future are the new technologies – body sensors, smartphones, cloud and big data.’
An example of this is cloud-based services that allow medtech providers to actively manage patients with chronic diseases, including diabetes and congestive heart failure.
‘The medtech companies can, in collaboration with health insurance providers, establish new business models that promote accountability for treatment outcomes and benefit all parties involved, and that make a gradual transition to a fee-for-value healthcare system possible in the first place, as many have demanded.’
As new market opportunities, these stocks offer huge potential gains, the manager says.
However, in all sectors, it is important to identify investment targets that have not yet captured the attention of the mainstream investment community.
‘That might seem to be a mission impossible in today’s digital world. And yet there are companies waiting to be discovered.’
The manager names Fisher & Paykel Healthcare, a New Zealand-based respiratory device supplier he says is largely unknown in the broader investment community.
The Bellevue healthcare fund bought into the stock in the summer of 2012 and the shares have since more than quadrupled in value.
One stock with hidden potential, according to Blum, is US healthcare product provider Baxter, as it has reported a year-to-date performance of over 25%.
The company underwent structural shifts in the top management at the beginning of 2016 as Joe Almeida joined the company as CEO and Jay Saccaro as CFO, which has set a value creation process in motion, he explains.
‘The hidden potential of value plays such as Baxter is often underestimated and when, as is the case with Baxter, a new, highly qualified management team enters the picture, the risk/reward trade-off is extremely enticing.’
This article originally appeared in the December 2016 edition of Citywire Switzerland magazine.