Healthcare portfolio manager says Obamacare, Boomers driving sector

healthcare-stocks

Healthcare stocks as measured by the S&P 500 Health Care Index have outperformed the S&P 500 (SPX) the past three calendar years and are holding up better amid early 2014 market jitters.

Robert Freedland, who manages the Healthcare portfolio on the Covestor platform, said the healthcare sector is enjoying a secular bull market driven by an aging Baby Boomer population, healthcare reform and other factors.

Aside from running several investment portfolios on Covestor, Freedland is also a full-time physician specializing in ophthalmology, so he brings a multilayered perspective to the healthcare sector as both a practitioner and investor.

The performance table below of the Health Care Select Sector SPDR ETF (XLV) shows the sector’s outperformance versus the S&P 500 the last three years. The fund tracks the S&P 500 Health Care Index.

“Obviously the Affordable Care Act is a politically charged topic, but personally I’m OK with the country using its resources to provide healthcare insurance for as many people as possible,” Freedland said.

The rollout of Obamacare has been plagued by well-documented problems with Helathcare.gov, the online healthcare insurance marketplace.

Freedland doesn’t think Obamacare fully explains the strong recent performance of healthcare stocks. Obamacare will bring more patients into the system, but there is also pressure to keep costs down, he said.

Separately, there is a bulge in the aging population and Baby Boomers are demanding higher quality of life as they retire.

“We in the Baby Boomer generation won’t age gracefully, we want to keep being able to walk, hear, travel and be active. We’re the Viagra generation after all, and we’re going to be spending a lot on healthcare,” Freedland. “Also, investors like healthcare because revenue is growing while some other sectors are having a tough time with sales growth and profit margins.”

His Healthcare portfolio is fairly concentrated, currently holding 15 stocks. Specifically, Freedman hunts for companies with attractive valuations, strong growth prospects and potential dividends. He may hold small-cap stocks and can invest across many healthcare subsectors.

For example, the portfolio currently holds dental company Align Technology (ALGN), which manufactures the Invisalign braces. It also holds large-cap biotech stocks Gilead Sciences (GILD) and Amgen (AMGN), as well as medical-devices producer St. Jude Medical (STJ).

Photo Credit: DeathByBokeh

DISCLAIMER: The investments discussed are held in client accounts as of December 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.