Monthly Review – May 2024
OUR PERSPECTIVE
“HEALTHCARE INVESTING IS ABOUT BEING ABLE TO SEE THE FUTURE AND WHAT IT HOLDS FOR HUMANITY.” ~ Bill Gates
Our quality of life today is significantly better than that of our grandparents. Indeed, our quality of life is not only better, but we live longer and experience significantly more than our ancestors. However, societies are also experiencing greater levels of illness, labour forces are shrinking, and inequality continues to rise. These demographic trends mean greater strain on governments and healthcare systems, with healthcare costs set to explode over the next decade. In the US alone, Medicare coverage is set to grow from $900bn in 2024 to $1.75tr in 2034. Whilst this represents only a 7% CAGR, it will significantly outpace GDP growth.
But this is also exactly the reason why investors should look for opportunities in healthcare. The need for change is the mother of innovation. And innovation is accelerating.
The life sciences industry is on the brink of extraordinary transformation, underpinned by the powerful convergence of genomics, robotics, and AI. We believe we are at the dawn of a new era in medical breakthroughs. A mix of integrating AI into R&D processes, supply chain shifts and innovation in therapeutic areas such as neurology, obesity, and oncology, are fuelling a resurgence of M&A activity and the IPO market following the depression of 2022 and 2023.
Exhibit 1: The extraordinary growth of social security and Medicare costs in the USA over the next decade, as projected by the CBO, will likely be funded by increasing debt and deficits:
Source: CBO, https://bipartisanpolicy.org/blog/visualizing-cbos-budget-and-economic-outlook/, 23/02/2024
Exhibit 2: Four economic scenarios according to Oliver Wyman analysis, with the most likely outcome somewhere between scenario 3 and scenario 4, in our opinion:
Source: Oliver Wyman analysis, health.oliverwyman.com
New business models will emerge whilst the biggest winners are likely to be those companies who are able to win consumers through brand loyalty and engagement. Undoubtedly many of these companies are still in the early stages of their life cycle or private companies in venture capital markets. But there might equally be opportunities in large, listed blue chips, and everything in between. A good example is the opportunity for GLP-1’s, which we discussed in a recent podcast, which you can listen to here. The extraordinary successes of early incumbents Novo Nordisk and Eli Lilly are severely underexploited due to supply shortages.
What is clear is that the opportunity cannot be taken advantage of through a passive or index-tracking fund, but rather investors will have to embrace active management. Investment teams will need a strong understanding of the science, the manufacturing and distribution risks, and the increasingly difficult regulatory environments these companies operate in. Sure, pricing pressures will likely remain, supply chains remain fragile which means volatility should be expected. But the opportunity for long term, patient investors into the Life Sciences space has never been more exciting!
To see graphs, download the PDF using the button at the top of this page.
EQUITIES
Big Tech reported positive earnings, and with Nvidia, Microsoft and Apple making up over 30% of the Nasdaq Composite, the index finished up over 8% in May, following the decline in April. The AI-led boom remains in-tact, in particular as fundamentals are delivering and broadening out. The US remains expensive, and from a risk-reward perspective, we retain preference elsewhere, although we retain high conviction in our technology and healthcare related themes. China was the second best performing major market, and following a strong April is by far the best performing market QTD. With double digit returns in the last two months, China remains significantly undervalued and underinvested, and we remain overweight.
FIXED INCOME
Breakeven rates turned down as fears of reacceleration in rising inflation subsided following inflation reports in May. As a result, bond volatility fell, and there was little excitement to speak about. The markets optimism in the soft-landing narrative is very much dependant on rate cuts, which we believe is unlikely in the absence of a significant deterioration in labour data or a credit crisis. We like the absolute yield on offer on shorter-dated Government bonds, including Inflation-linked Government bonds. Credit spreads remain very tight and given the significant rise in interest rates and material refinancing risks, credit markets are not being priced accordingly and we remain underweight.
REAL ASSETS
Copper remains topic du-jour in commodity markets, making new highs helped by expectations of recovering Chinese demand. Gold posted another positive month, and we retain significant exposure. As previously mentioned, we see $2000 as the new floor, with the price in a strong medium-term up trend, the upside could be very significant.
SPECIALIST STRATEGIES
CTA’s and Trend Following strategies generally gave back some of their significant gains in April and YTD. Managed Futures continue to play a significant stabilising role within our portfolios, and we retain significant conviction in the sustainability of the competitive advantage of the strategies we own, and the alignment of interest between the managers, us and our clients. As for private markets exposure, we retain limited exposure to these, both credit and equity, given our concerns regarding debt and the refinancing cycle.
CURRENCIES
We remain broadly neutral on currencies. On the margin we note that growth and inflation expectations could support a weaker USD, whilst interest rate differentials are pulling it upwards. The US Dollar remains the global reserve currency of choice, and in a severe market dislocation, we expect it to strengthen. We retain our positive view on the Japanese Yen, which we believe is undervalued and offers significant optionality alongside the potential catalysts for a revaluation.
CONTACT US
For further information on any of our services, or if you would like to arrange a meeting with an investment manager to see how we can work with you, please get in touch.
Disclaimer:
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Important information
Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: Floor 3, 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
Disclaimer:
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
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