Earlier this year, Barack Obama made a moving promise to make health insurance affordable and accessible to all Americans; he promised to lower healthcare costs and promote public health.
One would expect healthcare stocks to escalate after such a speech. Or would they plummet?
Tana Focke, the fund manager of Smith & Williamson North American Trust, says: “The Obama speech was not helpful.” She says health care companies and shareholders were “frightened” because Obama did not reveal how he was planning to cut costs. “Healthcare stocks fell sharply, even those of low-cost producers,” she says.
Two of her holdings, the pharmacy CVS Caremark and home nursing company Amedisys, were marked down even though the companies aim to make healthcare more efficient and cheaper, she says.
Focke, who has been managing the fund since November 1997, says the situation is an economic paradox. “They should have gone up because they are working on ways to improve the healthcare system. But people panicked, because they feared every company’s margin would be squeezed.”
Her £52.49m fund is “not a mirror of the US economy” because she strives to outperform the benchmark. However, “it tries to mirror the major sectors.”
Healthcare, Focke says, is one of the most important themes of the fund; her biggest asset allocation (17.7%) is in the sector. One reason for this is America’s ageing population.
Focke says the healthcare sector and utilities (6.6%) were the only sectors showing growth during the downturn. She is overweight in both.
“In a market where everybody is cutting back, it is hard to see growth.” However, in the technology sector where 12.5% of her fund is invested, she sees “progress, change and innovation”. Micros, a company in the hospitality industry, is one of her favourites.
Another favourite is the Corrections Corporation of America, a private prison company. “The stock has not been doing very well because local authorities are short in money and don’t want to pay for private prisons.” However, against the backdrop of the recession, she expects crime rates to rise. The company itself seems to have similar expectations, planning to increase beds by 10,000.
The fund fact sheet from January states that Focke’s top 10 holdings are Exxon Mobil (4.3%), Procter & Gamble (3.5%), Johnson & Johnson (3%), Abbott Laboratories (2.2%), Wal-Mart Stores (1.9%), Chevron (1.9%), Microsoft (1.8%). AT&T (1.8%), Republic Services (1.7%) and General Electric (1.7%).
Over one year, the North American Trust lost 10.16% against the Investment Management Association North American sector average fall of 15.04%, according to Financial Express.
Analysis: Healthcare under the microscope