Health Sciences Update

Q&A 2/4

Our positive outlook stems from three main areas: innovation within the sector, the regulatory environment and the current political climate.

telemedicine over the last few years, nowmore people have access to it through their insurance plans, including Medicare recipients, and with the added desire to avoid congregating in areas with sick people, we will likely see adoption increase. Further, the federal government has been making access to telehealth easier over the last few weeks to keep potentially contagious people out of hospitals and physicians’ offices. Lastly, an area of question is managed care companies, which may benefit from the reduction in elective procedures; with people putting off elective procedures, insurance companies do not have to pay for them, so their medical cost trend will be lower. However, it is unknown howmany people with commercial insurance will lose their jobs and therefore their employer provided insurance, meaning managed care might lose a significant part of their membership, presenting another area of uncertainty. This will mostly have an impact in the short term, but it may present a potential investment opportunity. Back to the overall markets, do you think that investors might be overreacting? The overall fear coming from the uncertainty is sparking this extreme market reaction. On the one hand, large parts of the economy, including supply chains, have for the most part shut down with no clear criteria for letting us return to normal. We have a large economy of people who for the most part are not working; they are no longer getting paid or only getting partially paid. So the concerns are certainly valid. The effects of the shutdown will take time to resolve; the economy may be slower as social distancing restrictions will need to continue for the near future. We are using the weakness to add to favored positions and new ideas that might be better positioned to benefit from the changes that will come from the shutdown. In addition, the Federal Reserve’s aggressive actions and the legislation coming out of Congress will likely mitigate the worst economic effects of the shutdown. Is there a light at the end of the tunnel or any positive take on the outlook? The good news is that for the people who get sick from coronavirus, they’ll either be mildly ill or they can get well with some modest therapy. Testing has finally started rolling out. People that need to get tested may get tested now and they can begin working through the backlog. Based on other countries, about 80% of those with the virus can be cared for at home—if they even get ill. Deaths seem to be concentrated in the elderly with pre-existing medical conditions. The purpose of the social distancing is to prevent younger people from transmitting the virus to an older person, for whom this could be very serious. Further, it will help prevent our hospitals from being overwhelmed by coronavirus patients, as hospitals do not have much excess capacity. I believe that drugs to treat the virus could be coming in the coming months or even weeks. This would likely calm the market down. Why is the health care sector a good investment in the current environment? In 2019, health care underperformed the broad stock market (as represented by the S&P 500 Index) and we believe this is due to the uncertainty that surrounded politically charged issues regarding insurance and pricing. After a slow start in 2020, health care is back in favor; we are more bullish than we have been in some time as we head into the second quarter. Our positive outlook stems from three main areas, the most notable of which is innovation within the sector. We are now also seeing promising signs from both the regulatory environment and political climate. Also, with the recent panic/fears of economic slowing, health care is likely to be viewed as defensive since most people continue to use health care even with a slower economy. While we generally think of a sector that is non-correlated to the overall market, when economic fear rises like now, many look to it as a place to preserve capital. What do you see as the main driver of health care sector outperformance today? Innovation is rapidly accelerating throughout the market and particularly in the health care space. This is what makes an active and diversified strategy so attractive—you can

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