By Atholl Simpson | 12:53:10 | 23 March 2010

The US congress’ approval of President Obama’s epoch-defining healthcare programme could signal a wave of new opportunities for fund managers investing in the sector.
Hilary Natoff, manager of the Fidelity Funds Global Health Care, believes that in bringing almost universal healthcare coverage to the world’s biggest market, the new programme will open new doors to investors.
Although she believes the new legislation does not present any major surprises, and its fundamental impact should alreday be well understood by the market, the removal of uncertainty should help the sector. ‘We might see a rerating given its cheap relative valuations,’ she said.
‘The new legislation involves insuring the uninsured, which will result in new money entering the industry (to expand coverage) and a reallocation of funds across sectors. My fund is overweight areas such as generic manufacturers, pharmacy benefit managers (PBMs), hospitals and laboratory chains, which I expect to benefit as the increased coverage will result in higher volumes and the elimination of costs incurred that were not previously reimbursed.’
‘I also favour the life sciences and health care IT industries which will benefit from stimulus packages that are independent of this reform. Interestingly, the tax applied to all medical devices is more benign than originally thought.’
Nick Skiming, Investment Manager of the Ashburton Americas Equity Fund, believes one of the most interesting aspects of the healthcare reform plan is the political fallout that is likely to occur.
‘Obama was elected on the mandate of changing the current healthcare system which has left as many as 46 million Americans without access to proper healthcare. The main thrust of the bill passed will be to broaden care to those Americans without insurance entitlement – the unemployed, self-employed or those employed in businesses without proper insurance schemes in place.’
“To help achieve this and reduce the costs of the overall plan, drug pricing will be under the spot light as price competition has been hindered by health insurance companies who have largely ensured that only drugs with the highest profit margins were used – this will benefit the large generic drug companies and this has been quite broadly signposted.’
He believes, however, that there will now be a political cost for voting for this legislation – and this will be seen in the all-too-near mid-term elections in November. ‘With both Republican voters and very many Democratic voters against this plan it is all too likely that many Democratic Senators will lose their seats, and the ability to pass any further groundbreaking legislation will be all but lost,’ he warned.
‘It has taken many decades for any President (either Democratic or Republican) to finally have the guts for an all out push to make a change to the creaking US healthcare system.’
‘It is equally historic that the President who finally succeeds in making a difference could also be condemning himself and his government to a single term. The consequence of progress or perhaps in Obama’s own words of just doing “the right thing” will be an education for all.’
Over the past five years has Natoff has returned 18.7% through the Fidelity Funds Global Health Care fund, while its benchmark, the MSCI World/Healthcare TR, rose 15.9%.
Skiming has returned 2.2% over the last five years with the Ashburton Americas Equity fund while its S&P 500 TR benchmark has fallen by 0.9%.

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