I have been contemplating putting about 5% of my portfolio into this arena. But I'm not sure if that is a wise move right now. Would I be "late to the party"?
I have been hearing and reading that this is the place to be but the returns over the last few years (and YTD) have been unbelievable. I don't expect that to continue, but is there still room for Healthcare to prosper going forward?? What about the Biotech arena? I know it is much more volatile than the broader "Healthcare" sector; but is it worth it???
I can take some volatility, so that is not a major concern. Furthermore, this industry also seems to be a nice diversifier, little correlation to the stock market as a whole!
Any and all thoughts, comments, ideas and suggestions welcome!!!
Thank you, Matt
Comments
Also, there is an investor day webcast on the Tekla website (HQH, HQL, TQH) that lasts about 3.5 hours. I thought it was a fascinating look at the industry - 3.5 hours may sound like a lot, but I thought it passed by rather quickly, with a panel discussion, chat from the fund managers and guest speakers.
If you are worried about the bull getting long in the tooth, you could DCA into healthcare and biotech and/or wait for a pullback to add funds.
I work in the HC industry, and I am very positive on this sector in the short- and long-term, and I really don't think that it is too late to initiate a HC position. We currently have a 10% position in PRHSX, and own even more HC through our position in POAGX.
Kevin
The below linked chart lets you look at about 3 years of numbers. You may move the days slider to the left or right for a different day span.
Review will likely find that most of the broadbased healthcare funds tend to move/track the biotech area. 'Course, all funds will have some variation as to the percentage of exposure to any of the health care sectors within that fund.
We added to the healthcare area in October when the market moved down a bit.
Others have noted, and I agree that it is an investment area that should sustain itself. Of course, this sector could cycle downward somewhat with a stronger selloff of broad equity areas.
Which decent funds your have access to, may be of some consequence; be they active managed or etfs.
M* health funds category list
bio etf & 3 active managed funds chart
Regards,
Catch
Kevin
Another option is to check out is PJP, an etf which has multi cap pharma and some biotech thrown in for good measure. I hold this, along with FBTIX and PHSZX for my health care exposure. There really is not as much crossover as you would think, since PJP holds no device or tech in health care, just pharma. It also has less downside than either of those funds.
Does anybody have any thoughts on Blackrock Healthcare (SHSAX) "Load Waived" at FIDO or Vanguard Healthcare (VGHCX) also at FIDO and GOLD rated by M*?
I like the idea a pairing with another fund such as FBIOX, any suggestions or comments?
FIDO shows PRHSX (TROWE) as "closed" to new investors even though it is "open" at TROWE. Any insight or suggestions?
Thanks,
Matt
"FIDO shows PRHSX (TROWE) as "closed" to new investors even though it is "open" at TROWE. Any insight or suggestions?"
Listed as closed to new at Ameritrade, but was still able to buy it.
"what about healthcare REITs?"
I don't own any but VTR has always been one that I've considered high quality. The idea of a lab REIT is interesting in theory, but I haven't seen any that have done well - BMR got wrecked in 2008, as did ARE.
You noted: "Does anybody have any thoughts on Blackrock Healthcare (SHSAX) "Load Waived" at FIDO or Vanguard Healthcare (VGHCX) also at FIDO and GOLD rated by M*?
I like the idea a pairing with another fund such as FBIOX, any suggestions or comments?
FIDO shows PRHSX (TROWE) as "closed" to new investors even though it is "open" at TROWE. Any insight or suggestions?"
>>>For broadbased healthcare, I do not find an advantage to holding Vanguard or others when compared to FSPHX. The performance is similar looking backwards. There is and will be variances over other time frames depending on manager actions. As you are already "inside" of Fido with your account, I personally don't find a need to move outside of Fido offerings. I have not checked for overlap; but you could also consider a more directed play towards pharma with FPHAX or directed towards the delivery side of medical services with FSHCX.
With the exception of FBIOX, of which; FSPHX has a chunk of this action, over a 5 year time frame, FSPHX is a most suitable and able performing healthcare fund when compared to all other active managed funds.
We've considered mix and match with the several Fido medical area funds; but have remained with our monies in FSPHX.
Fido also has an etf (can't recall the ticker), either via I-shares or Fido for healthcare.
Lastly, I personally would not invest any less than 5% of a total portfolio in a given sector, in order to provide enough momentum to a portfolio. 'Course 5% can also go against the portfolio, too.
As others have also noted; your other equity fund holdings may alread have your portfolio at 5% of total holdings in healthcare. Many broadbased equity funds owe their YTD gains to healthcare holdings. I personally find no problem with adding to this sector, as dedicated holdings.
As always, just suggestions; eh?
Take care,
Catch
As for an REIT, I have never researched it in depth, but HCP is 12% below M*'s fair value estimate and paying a little less than 5% yield.
A revolution is under way in health care, and it’s not too late to cash in. Scientific advances are changing the way drugs are developed and creating a torrent of new treatments. By making insurance available to millions who previously couldn’t buy it, Obamacare is fueling demand for health care products and services. And, oh, by the way, we’re not getting any younger.
Put it all together, and this colossal sector is likely to keep growing faster than the overall economy. Health care spending in the U.S.—some $3 trillion a year—accounts for 18% of gross domestic product. The government predicts that the figure will rise by an average of 5.8% annually over the next eight years, slightly faster than the growth of the overall economy. That’s reason enough to make a long-term commitment to health stocks, but it’s not the only one. Three trends are dramatically changing the health care system, creating plenty of opportunities for investors.
Regards,
Ted
While PRHSX does appear to "allow" a buy internally at Fido, personally; I don't find a need to purchase ($50 fee) this fund versus FSPHX.
My 2 cents.
Take care,
Catch
I have a question for you related to your points here and in another post about not investing less than 5% in "whatever" because it takes that to make any difference in your portfolio. I agree with you but I also realize it can depend on how you define your "whatevers". For instance, my position in PRHSX is 1% of my portfolio but I could count it as healthcare or I could count it as large cap growth or both. Either way it doesn't make or break the 5% rule in this case, but when you think about your 5% threshold, do you double count? And if not, how do you decide which "whatever" things get allocated to? Thanks for your thoughts!
You noted: "I have a question for you related to your points here and in another post about not investing less than 5% in "whatever" because it takes that to make any difference in your portfolio. I agree with you but I also realize it can depend on how you define your "whatevers". For instance, my position in PRHSX is 1% of my portfolio but I could count it as healthcare or I could count it as large cap growth or both. Either way it doesn't make or break the 5% rule in this case, but when you think about your 5% threshold, do you double count? And if not, how do you decide which "whatever" things get allocated to?"
>>>What I posted in another thread: Our house remains U.S. centric in the equity area, gathering whatever international exposure from the fund holdings. The only direct exception being, GPROX; at this time.
A serious consideration going forward is to maintain VTI / ITOT or similar holding for 40% U.S. equity exposure and PIMIX (our largest bond holding) for bond exposure, also at 40%.
The remaining 20% would be allocated to "other", as determined by market observations. Currently, this would be the healthcare sector. Any of these holdings would be subject to change, not unlike June of 2008, as previously noted. None of the 20% floater money would hold less than 5% in any one area; as too little forward appreciation could likely be the result. This could mean, however; that more than one fund could result in a given market sector.....i.e.; energy; to provide the 5%.
Regarding the 5% consideration for the "whatever" money.
The 5% minimum I personally use is for investments I consider favorable for my risk/reward tolerance; and that present what appears to have a decent capital appreciation potential.
This is relative to what I noted above; with maintaining 40% in each for VTI and PIMIX. Healthcare holdings are about 14% of VTI. This would meet my needs, if I wanted at least 5% in healthcare (14% of 40% of the total portfolio).
Obviously, 40% each to VTI and PIMIX indicates a major part of a preference for an overall portfolio, and is U.S. centered with the exception of non-U.S. companies within VTI, or more so, the earnings of U.S. companies generated outside of the country. So, one could weakly argue some foreign exposure.
Now, what to do with the other 20%? Cash at this house has been some form of bond holding. If we want to buy something else, we always have to sell some of a bond fund for the transaction (at least as of today
This is the part that generally has the consideration for the 5% to make any difference; for the investment to be worthwhile to the overall portfolio. Usually the 5% is purchased at one time. Although, I think it is fine to average into a holding, too. But, I if averaged into a particular holding; it would likely be within a one month time frame.
Today, with 80% of a portfolio in the above two holdings; this would be the mix for the remaining 20% if split 4 ways: GPROX (although now closed), FRIFX (conservative, decent performing real estate), GASFX (utiliy/energy) and FSPHX. Or the whole 20% into FRIFX , GASFX or FSPHX.
This is obviously a lot of fiddling around with a portfolio. With enough choices, one may also consider 20% into 5 balanced/conservative allocation/moderate allocation funds or etfs to spread manager risk. I note this as one balanced fund with a very nice return record for several years is in the tank this year....... VILLX is running a negative return YTD. Lots of folks with this fund who are not happy. We do not hold this fund, thankfully.
>>>You also noted: "For instance, my position in PRHSX is 1% of my portfolio but I could count it as healthcare or I could count it as large cap growth or both. Either way it doesn't make or break the 5% rule in this case, but when you think about your 5% threshold, do you double count?"
PRHSX is a sector fund and that is the only way I view such a holding. It is a special consideration; separate from a LC, MC, SC, growth or value equity. Such a fund could be a combination with tight restrictions from managers; such as a small cap healthcare fund, but it is still a dedicated sector.
>>>Also noted: " but when you think about your 5% threshold, do you double count?"
I will presume you mean overlap within holdings to form the 5% threshold. Yes.
I write singular here; but the portfolio is a household portfolio. At one time we both had several 401k/403b from investment vendor changes over the years. Early in 2009 we wanted a high percentage exposure to the HY bond area. We had about 45% of our portfolio invested in this area at one time, split among several investment houses within the retirement accounts. The same would apply to 1% from here and another 2% from somewhere else to meet the 5%.
I have not checked, but I suspect many broadbased equity funds have fairly high percentages of healthcare holdings. Depending upon your funds, you may have a fairly high overall percentage of healthcare.
In theory for some, is that diversification helps ease the pain when the markets are "mad". One could suppose finding 20 investment areas and givng 5% to each. I'm not convinced this method is of value.
I probably missed something with this long write; which was not intended to be this chatty.
Like me know about clarity; as it is too late at night for me, today.
Regards,
Catch
I previously commented that the healthcare component comprised 12% of the S&P500 index. That is confirmed here, http://www.bespokeinvest.com/thinkbig/2013/3/11/historical-sp-500-sector-weightings.html although the data is two years old. I don't think there has been that much of a change.
As for returns, the healthcare sector within the index has returned 25% YTD. This from the Yardeni research. http://www.yardeni.com/pub/PEACOCKPERF.pdf
So anyone holding the SP500 index has a 12% exposure to healthcare already. The missing part of that is biotech. There might be a bit of that in the index but I think it is mostly comprised of big pharma etc. Is it still a good idea to throw an additional 5% of the portfolio into healthcare exclusively? I think so and with that you get the biotech components which are the big returners this year and I think for the future. As I have said before, I like "future stocks". There is also another consideration in this as companies like GE have a healthcare component within them but they are classified differently. Toshiba is another company like that as well as Siemens. The latter two are not SP500 companies but I added them for examples. There may be others.
Edit: Look at Fig.10 of the Yardeni link that breaks down the healthcare sector further into subsections and biotech is the leader at 35% return YTD. The others are not chopped liver either.
The bigger question might be at what point does an investor have too much in healthcare?
The problem - as you noted - they are classified differently and also, they trade like industrials rather than healthcare companies. I haven't looked at what % of GE's business is healthcare lately.
"The bigger question might be at what point does an investor have too much in healthcare?"
As noted above by Ted, healthcare makes up around 18% of GDP. Not only is that an enormous figure already, but - as noted above - it's predicted to grow faster than the economy for the next several years. With the idea that people have to buy health insurance or effectively pay a tax, certainly a tailwind for healthcare. You're seeing more in the way of organic growth with healthcare, as well, not all buyback/financial engineering a-la IBM.
The other aspect of healthcare is that there are a number of themes at work, including an aging population and unhealthy lifestyles that persist for many reasons (I mean, look at the chart of NVO.
http://finance.yahoo.com/echarts?s=NVO+Interactive#{"range":"max","scale":"linear"}
The question for me is when does government turn around and say, "enough is enough" and try to regulate costs that are spiraling out of control. If they crack down, then things change in a hurry. I just don't think that's going to happen as no actions from the government thus far would lead me to believe that they will. I mean, they're corporations, so for the last decade they're the ones who have increasingly been catered to and looked after by government in this country.
Until then, I think one has to have a good deal devoted to healthcare and preferably specifically healthcare. There is a point where it starts eating away at discretionary spending, as well - does health insurance start moving higher to the point where people skip that latte?
The question of how much do you need in healthcare - I dunno, for me, I think it's a broader focus on "needs" (which certainly includes healthcare) over "wants".
You noted: "So anyone holding the SP500 index has a 12% exposure to healthcare already"
>>> I did some quick checks at Fido and found the following:
---Most large cap funds, including etfs and indexes are weighed about 14% towards healthcare
---mid and small caps vary from 9-12% in healthcare
---growth funds trend to be higher, with some funds holding in the 22% range for healthcare
---value funds trend more towards the 8% range
---balanced funds, both conservative and moderate, range from 14-18% healthcare exposure
The question would be what an individual considers overweight positions for their portfolio. Assuming an investor has 80% of their portfolio in equity via SPY , VTI or a large cap U.S. index fund, and that about 14% is healthcare, they would have 11.2% exposure to healthcare. They may consider this sufficient. Using the 14% healthcare exposure as an average for equity funds and an investor having 80% of their portfolio in U.S. equity; any healthcare sector exposure above 11.2% could be considered overweight by some.
For many close to or in retirement and perhaps having reduced their equity exposure to 50% or lower, the exposure to healthcare moves to 7% and less. A conservative allocation for a retired investor may have a 30/70 ratio for equity/bond style. This equity style would provide about 4.2% exposure to healthcare. Perhaps an individual in this scenario could move 10% of the bond holdings into a dedicated healthcare fund, etf, etc.
These individual "benchmarks" into a given sector should be a consideration regarding an under or overweight position.
Just a few early morning thoughts without enough coffee.....yet.
Take care,
Catch
If a person had 80% in a SP 500 Index fund and decided to put the other 20% into healthcare, that would come out to about 32% of the portfolio in the healthcare sector. As long as things are going smoothly then the returns on this portfolio would be pretty good. But none of us has that crystal ball and if healthcare has a bad year, that 80% in the index will not save him either. There might be some argument here if healthcare might have a bad year with everything we have discussed. Again, no crystal ball but the same thing was said of tech before 2000, and of housing before 2007-8.
So @mcmarasco should be okay with 5% along with what else he has invested.
I never believed the fictitious Gordon Gekko who stated that "Greed is good."
When Health care investments start earning less than the Stock market as Whole, that would be a good time, if we live long enough to start seeing declines in Health Care costs, my guess...we won't
You noted:
"But here's another question. I have a couple investments in start-up companies that happen to be healthcare related, medical devices. M*'s X-ray says I have 17.5% of my equity in healthcare, which I consider to be fairly overweight because healthcare is about 14% of large cap funds, a bit more for the S&P 500, only 9-12% of mid and small caps and more like 8.5% of market capitalization outside the U.S. So I'm anywhere from 20-100% overweight. But...that's without my start-ups. When I think about my exposure to healthcare, would you stick with M*'s numbers or would you add in the start-ups? I've always excluded them, because while the ultimate value of the company may be influenced by the equity markets generally and the healthcare sector more specifically, the real success or failure is almost totally dependent on whether they can successfully develop devices that are valuable in the marketplace. Essentially its an all or nothing proposition based on the skill of the inventors more than anything else."
>>>I suppose I would count money in startups as "other"; regardless of the sector.
About 6 weeks ago we purchased an IPO stock, DPLO (Diplomat Pharmacy); but this is an established company that went public, which is a whole different proposition. We do treat this holding as part of our healthcare sector percentage.
Your 17.5% in traditional healthcare would be fine by my standards at this time. But you, of course; are the one to determine this amount.
Are these startups at a venture capital stage and have not issued public stock?
Regards,
Catch
I have plenty of information to process to help me make an informed choice!!
Thanks, again!
Matt
Since 1993, VGHCX has never trailed (in any significant way) VTI and the difference in performance might pay for that hernia operation from lifting too much snow (catch22) or too many 40 oz bud lights (TB):
Thank you. A good point; and yes, charts are very helpful to me, too.
Hopefully, the snow will not be too much this coming season; although winter is already waving its cold finger towards us............16 degrees tonight, from the clear skies; so no snow tonight here.
Take care,
Catch