21 October 2019
By David Palmer, Co-Fund Manager HC Verbatim Portfolio 5 Income Fund
Investment opportunities in an ageing world
When we consider an ageing population, the implications are largely negative. We are living longer, but this means there will be limited resources to go around. Whilst it is, of course, positive that fewer people are dying at a young age from injury and infectious disease, it does mean that more people suffer – and for longer – from chronic diseases later in life. We must also consider the burden placed on the working-age population, as elderly relatives become dependent on their children for many years after their grandchildren have moved out.
The rise of personalised medicine
One challenge in healthcare is the focus on sickness over wellness. Typically, 97% of healthcare expenditure is on the treatment of illness, with only 3% contributing towards prevention and public health awareness. A staggering amount of money is wasted in the healthcare sector. In many cases, rather than helping the patient, the standard model of traditional diagnosis and non-targeted treatment appears to have either a negligible or even a negative effect. Better and more cost-effective diagnosis is enabled by companies in which we invest such as Australian-listed diagnostics company, Sonic Healthcare, but this is one of only a handful of scale providers in an industry with high barriers to entry.
Enter personalised medicine – one of the most intriguing areas of innovation today. Genomic science turns human DNA into a mappable and editable sequence of data. The applications are immeasurable – in healthcare, it will allow certain diseases not only to be treated, but also prevented, and possibly even eliminated across the population.
A sector with vast potential
Amgen is one of the biotechnology companies in which we own shares. The company aims to gain a deep understanding of disease and create highly targeted treatments. So far, it has developed at least seven different treatments using genetic experiments carried out in its own laboratories. Amgen benefits from an enduring competitive edge through its deCode subsidiary which holds a wide sample of genomic data, initially from Iceland but now further augmented through a joint venture with the Intermountain Health System in Utah and Idaho. All told, this should total detailed data on 500,000 individuals, which enables scientists to better understand the relationship between genes and illness.
The holding of genomic data may facilitate significant advances in medicine. However, as innovation continues to accelerate, we should also consider its risks and any potential negative impacts. Could it be used for unethical purposes? Absolutely. The potential for genetic data to be used for unintended purposes cannot be ignored. It is also notable that policy and regulation can be slow to catch up with breakthroughs – legislation that is passed late can also be excessively heavy, to compensate for the damage already being done.
We believe that a strong environmental, social and governance (ESG) process is vital both in terms of identifying opportunities and avoiding or mitigating such risks. Our embedded ESG process is designed to ensure that the companies we invest in are not only engaged in worthy research, but also represent opportunities for responsible investment in a sector with vast growth potential.
A longer, healthier life is also down to us
With the genetic aspect of disease taken care of, our future selves need only worry about our lifestyle choices. Advancements in healthcare may prolong a typical lifespan, but ageing in itself is not the problem. An elderly population with a poor quality of life is the real risk, as this is where the burden on healthcare and the younger working generation truly lies. Certainly, companies such as the Californian Life Company (owned by Google) are investigating ways to improve health into old age by combating the variety of issues that affect the body with age.
Another area of healthcare innovation is the push to aid individuals to take responsibility for their own healthcare. In future years we may be able to manage most of our healthcare needs using mobile phone apps. While we may still make poor life decisions, there is no doubt that technological accountability appeals to many people.
Mobility problems and sensory impairments are additional risks when we look at quality of life in an ageing population. Fortunately, technology has the answer in many cases, with advancements in prosthetics, surgical techniques and implantable devices occurring across the industry. Investor AB – the Swedish investment company of the Wallenburg family – has various companies within its portfolio such as Permobil and BraunAbility, which provide innovative products to help with mobility.
Focusing on the positive opportunities
The concept of ageing suffers from a host of negative associations. However, we believe there is much to be optimistic about. Advances in medicine and healthcare are exciting investment opportunities, and ones that we are either exposed to our portfolios or monitoring closely. But more importantly, they represent tangible improvements in quality of life, enabling people to live better and healthier lives for longer.
The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. This article is for information only and should not be deemed as advice.