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Analysis: While not without its troubles, the health care industry is one of significant growth and opportunity, yet is also a wonderful defensive play in volatile markets. In addition to the growth opportunities created from the rapid development of the emerging markets and the research and development on life saving drugs, there has also been unprecedented dollars spent on life enhancing drugs, as the baby boomers spend countless dollars to try to reclaim their youth. Further, as health care coverage is expanded to include more people, access to drugs and treatments will inevitably increase. The combination of these factors provides solid growth prospects, and good downside protection in volatile markets.
One of our favourite funds in the sector is the TD Health Sciences Fund. The fund invests in companies that are involved in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. To qualify for selection, they must derive at least 50% of their assets, revenues, or operating profits from those activities. The manager tends to focus in the U.S. where nearly 81% of the fund is invested.
This fund is one of the least volatile in the sector, which is impressive given its focus on a number of mid cap names. Performance has been strong on both an absolute and relative basis, posting first quartile performance in all time periods, and handily outpacing the MSCI World Health Care Index.
As mentioned above, health care is a good defensive sector in periods of market volatility. For example while the MSCI World Index plummeted by more than 35% between June 2008 and February 2009, the TD Health Sciences Fund was down by 10.5%.
Another compelling feature of this fund is that is has exhibited a relatively low level of correlation to the traditional asset classes. This will allow it to provide some reasonably compelling diversification benefits when included in a well diversified portfolio.