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The healthcare sector heading for a transformation

The healthcare sector heading for a transformation

Companies in the medical technology sector are finally catching up with other industries by diversifying their goods and services.

That is the view of Citywire A-rated Stefan Blum, who manages the Bellevue F (Lux) BB Adamant Medtech fund.

Blum said the target markets of these companies will quadruple as they invest in expanding their product offerings.

‘It is a very healthy industry and an industrial transformation is taking place in medical technology. In the future we will see more integrated providers that not only deliver tech devices but also services for products,’ he told Citywire Selector.

‘That industrial transformation has taken place in all other industries. If you look at heavy industry companies that do energy turbines, for example, today they don't just sell turbines, they sell the whole utility or run the whole utility.’

Blum added that mergers provided a significant tail wind to these changes. In his fund at present, the managed care sector makes up 9.9% of sector exposure and these are companies active in mergers.

‘In managed care organisations, you see them buying healthcare IT, which they build in their own organisation to better manage the healthcare plans they offer to their clients.’

‘You also see companies like United Health buying outpatient surgery centres to get a better workflow and try to keep patients out of hospital, which is very expensive, and carry out treatment in a high quality, highly specialised outpatient department locally,’ Blum said.

Small life savers

The largest holding in the fund is Medtronic, which develops medical devices and makes up 9% of the fund. Blum said it is benefitting from the trend towards miniaturisation.

As devices such as pacemakers get smaller, the surgery to implant them was less hazardous, he said.

‘These technologies have gone from ultra-high risk to basically all patients who need heart valves. That trickles down and is a huge market and generates lots of revenue for the medtech companies like Edwards Lifesciences.’

‘You improve the mortality of people whose heart is likely to stop during surgery or experience a cardiogenic shock with a little pump, which is minimally invasive and goes up through the groin into the heart.

'With this the patient recovers and patient mortality goes dramatically down. It is a bit expensive, such as $20,000, but it is something that saves lives.’

Over three years to the end of April 2017 the Bellevue F (Lux) BB Adamant Medtech fund returned 40.22% in US dollar terms. This compares to a rise of 24.01% by its Citywire-assigned benchmark, the MSCI World/Health Care TR, over the same time frame. 

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