Thanks to the wonders of modern healthcare, people are living longer than ever. In fact, official figures show most men will live to age 80 and most women to 83 – up from 71 and 77 respectively just 40 years ago.
And this upward march is only set to continue, according to the Office for National Statistics, with about half of people born in 2066 expected to live for an entire century.
Despite the obvious challenges that presents for public services, keen-eyed investors may also spot an opportunity. For the ageing population is set to prompt huge demand for healthcare products, services and machines that help people live more comfortably in their twilight years.
That presents a dizzying array of options for where to put your money. But what should small investors be looking for?
Russ Mould, investment director at AJ Bell, says there are strong, long-term trends which suggest that healthcare stocks could be a useful part of a diversified share portfolio.
These stocks, he adds, are sometimes seen as ‘safe harbours’ because people will always get sick and need help, regardless of how well the economy is doing.
Fast-developing countries with burgeoning middle classes – such as China, India, Mexico and Brazil – are also expected to continue ramping up healthcare spending as incomes improve.
‘That said, there are risks’, Mould cautions. ‘Healthcare budgets are under pressure, drug pricing is a huge issue, generic competition is a threat once drug patents expire and drug development remains an expensive and uncertain process.’
Smaller biotech and health-tech firms can be risky investments as the innovations they are working on may never come good.
For evidence of the risks, look no further than scandal-hit fund manager Neil Woodford, whose investments in US-listed Autolus and Theravance Biopharma have dropped 30.5 per cent and 27.9 per cent in value respectively in the past year. Woodford’s flagship Equity Income fund is blocking withdrawals while it sells stock to free cash for departing savers.
For those who do want to invest in healthcare, the options are wide. Choices range from big drugs companies such as Glaxosmithkline – led by Emma Walmsley (pictured) – and Astrazeneca, to smaller biotech outfits such as Oxford Biomedica and equipment makers such as Smith & Nephew.
Stocks such as Glaxo, which also pay dividends, can be safer bets, offering steadier returns. Mould says those looking for riskier, but potentially lucrative, investments may fancy biotech firms who could be developing the next blockbuster medicine.
But, he warns: ‘Expert knowledge is needed here. Risk-averse investors will be better off waiting until biotechs have proven products, sales and profits.’
Investors looking for a selection of bets could try a fund that backs a mix of risky and less risky companies, such as Worldwide Healthcare Trust or International Biotechnology Trust, both of them London-listed.
Over the past five years, the latter has delivered a 152.6 per cent share price return and the former produced a return of 120.6 per cent.
Smith & Nephew is an example of a company making equipment rather than medicine. The leading British firm, which produces artificial hips and knees among other things, has seen shares surge by 30 per cent in the past year.
It reported a 4.4 per cent rise in revenue for the first quarter of 2019. Another option, Mould says, is to look at firms such as AIM-listed Caretech, which looks after children in foster care and adults with learning disabilities or mental health problems.
More of this is being outsourced by the NHS and Caretech is taking advantage of a fragmented market, recently buying rival Cambian for £279m. A riskier option is Venture Life, a seller of branded self-care products for the elderly that is also listed on London’s junior stock market.
It turned a profit last year but Mould cautions that its operational gearing – the sensitivity of profits to a 1 per cent change in sales – still remains high.
Others are seeking to make money from healthcare data. AIM-listed Sensyne Health, set up by former Labour science minister Lord Drayson, wants to strike partnerships with NHS trusts to analyse patient records before licensing this to companies that can use it to create new drugs.
So far, six trusts are on board, including Oxford University Hospitals NHS Foundation Trust.
However Richard Bernstein, a City veteran and boss of hedge fund Crystal Amber, says investors should consider any investment with their eyes open.
‘At the end of the day, what you are actually buying is a share in a business and you need to make sure you understand that business,’ he says.
‘What are you paying for? And how much could it make if it all comes right? If the probability of success is say one in 100, then that is a bad investment.
‘You can’t put a price on someone’s life, but it can be a win-win – you make money but also do something that helps humanity at the same time. These businesses need funding, because what they do is all about taking risks and pushing boundaries.’