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Sector Watch: Spotlight on Healthcare

How healthy is your portfolio? Diversifying your investments means more than just owning a lot of different securities. It’s a matter of owning securities that don’t all move together when markets fluctuate. So it helps to know what’s going on with the different market sectors. And right now the healthcare sector is one that has a lot of people’s attention.

Innovation has been a primary theme among growth companies for some time now, and it would be difficult to find a sector more impacted by innovation than healthcare. A dozen years after scientists first mapped the human genome, biotechnology and pharmaceutical companies are beginning to offer new compounds based on DNA research. Commercial drugs targeting gene mutations are already treating lung cancer and cystic fibrosis, and researchers are optimistic that treatments for more common conditions like high cholesterol will soon be available.[1]

Drug breakthroughs occur in cycles, often lasting 10-15 years, depending on the effectiveness of research and development. Some industry watchers believe the biopharmaceutical industry has entered a new era of productivity. Disease targeting and testing has become more precise, thanks to genetics—and that has been made possible by a drastic reduction in the cost of genetic sequencing, from $3 billion for the first human genome to just $1,500 today.  Abundant capital for R&D, and greater cooperation from regulatory agencies like the U.S. Food & Drug Administration have also spurred productivity. The FDA has helped bring breakthrough treatments to the market through faster approvals—in 2014 greenlighting more drugs than any other year since 1996.[2]

Experts also point to the adoption of the Affordable Care Act as a catalyst for bringing more patients into the healthcare system and spurring innovation in patient treatment. More doctors and hospitals are now adopting healthcare technology solutions to better share patient information, streamline costs through administrative savings and preventative care, and effectively manage higher patient loads.[3] A group of upstart companies are harnessing data analytics to meet this demand, creating a burgeoning healthcare tech market with long-term growth potential.

With all this said, it’s important to remember that the healthcare sector is subject to a number of different risks, and can make for a volatile investment, particularly if you’re looking at the biotech subsector, which can be extremely risky.

Investors who understand the risks and are interested in the healthcare sector can easily gain access to it through Ready-to-Go Biotechnology and Healthcare Folios. Both folios equally weight the 30 largest stocks in their respective category to provide broad yet targeted sector exposure. This approach differs from most sector ETFs and mutual funds, which weight holdings by market capitalization, an approach that can cause the largest stocks, rather than sector trends, to determine performance.

[1] Reuters, “How DNA Sequencing is Transforming the Hunt for New Drugs” May 13, 2015

[2] Forbes, “2014 New Drug Approvals Hit 18-Year High” January 2, 2015

[3] Mergers & Acquisitions, “5 Technologies That Drove Health Care M&A in 2014” December 31, 2014


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