Gustavo Ballvé on March 23rd, 2010
Food for thought, Healthcare, Home, Industries, Investment Themes, Portfolio Management, Signal or Noise

Now that the U.S. Healthcare bill has passed and just been signed into law by Mr. Obama, it’s interesting to comment on the amount of noise generated in the past two days (LEX by the FT, as usual we stress that we avoid linking to paid sources, but that this column is worth the subscription). Newspaper and sell-side reports are booming with articles and so-called analysis of what this means to investors, but right now it’s probably better to “do something by doing nothing”.

The truth is that it’s way too early to assess the full effects, but analysts are already throwing around conclusions. When one thinks about it, most of the reform’s effects will happen after 2014, longer than most people’s investment horizons, which means most investors are either ignoring reform or using it as a means to speculate. Fixed income markets may be looking at greater future fiscal deficit, but haven’t acted on it yet.

One sound strategy here is to recognize one’s own ignorance and try not to depend on particular outcomes – without neglecting selective Healthcare exposure. We’d prefer diversified companies over time, whose businesses are much more associated with a “picks and shovels” theme (such as Thermo-Fisher) or those in which there’s a strong consumer brand poised to benefit (such as Johnson & Johnson).

About the bill in general, politics can be a very volatile field – it’s a governance conundrum one could be happy to stay away from. The long debate on health reform ended with what seems to be a hard outlook for some health plan operators, but a broad tailwind for the general industry: plan coverage, by various means, should increase substantially going forward (estimated 32mm new enrollees over 10 years).

Large pharma companies are, at first, picking up the bill for the entire drug value chain (US$90 Bi fees over 10 years), which makes research equipment providers (upstream from pharma) as well as drug distributors (downstream) prone to benefit from increased coverage without a significant burden. Over time these fees should flow along the chain and, ultimately, to consumers.

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