Health Care ETF Quarterly Report | October 2024

Health Care ETF Key Takeaways

  • The Healthcare sector remains sharply bifurcated, with consensus investments focusing on perceived “safe havens” like big pharma, healthcare distribution, and HMOs. Cracks are beginning to emerge in these areas, however, as elevated valuations are now being questioned and signaling a potential shift in investor sentiment and positioning.
  • Biotech continues to stand out as a key growth area, driven by innovation and significant milestones among key holdings such as FDA approvals and promising clinical trial results. For Ascendis Pharma specifically, they achieved FDA approval of Yorvipath and positive Phase 3 data for its Achondroplasia treatment, highlighting the potential of breakthrough therapies and treatments to drive future value.
  • There is growing skepticism around elevated valuations in large pharma, particularly in areas driven by short-term trends like GLP-1 weight loss drugs and Eli Lilly in particular. Investors are beginning to focus more on long-term risks such as competition, intellectual property issues, and the sustainability of pricing models.
  • Increased clarity around the Biosecure Act in Congress positively refocused investor attention on company fundamentals, particularly in Legend Biotech. A more stable regulatory outlook could pave the way for further rebound in the name and narrowing of its significant discount to intrinsic value, in our opinion.
  • Our holdings across the health care equipment space showed resilience, with particularly strong performance from Lantheus on easing reimbursement concerns. Conversely, Dexcom experienced some temporary operational issues which led to a dislocation in the stock price, which we viewed as an opportunistic opportunity to add to our position and emphasizes our view of long-term growth potential in the name.

Macro Outlook

We continue to believe that the economic backdrop, Fed easing cycle, relative year-to-date (YTD) sector underperformance vs. areas like large cap technology and a potentially favorable political backdrop all offer enthusiasm for a strong forward relative return environment in Healthcare. We remain convicted in our largest positions to capitalize on future alpha generating opportunities, and favor both biotechnology and healthcare equipment in the current environment.

Additional sources available upon request.

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