The U.S. election cycle normally makes for volatile times in the healthcare sector, but the current campaign is having a limited impact.

With a month to go before the election, the strong rhetoric that characterized the beginning of the year has all but disappeared making investors optimistic about healthcare prospects. This is in part because Big Pharma’s rapid response to the pandemic has won praise from consumers. Their new positive attitude is one of six healthcare energizers, Paul MacDonald, Chief Investment Officer at Harvest Portfolios Group, discussed with advisors in a recent webinar.

Consumers have been impressed as drug companies have quickly committed massive financial and scientific resources towards a Covid-19 cure, Mr. MacDonald said. This is creating a halo effect which is a tailwind for all companies in the industry whether they are developing vaccines or not.

Paul MacDonald
Chief Investment Officer
Harvest Portfolios Group


Mr. MacDonald discussed short and long-term prospects for the sector and explained why he believes shares prices are undervalued. Many of the trends play to the strengths of the Harvest Healthcare Leaders Income ETF (HHL:TSX) which holds 20 of the largest global healthcare companies with a minimum market capitalization of US$10 billion. As at September 30, 2020, about 50% of the ETF’s holdings are in pharmaceuticals, 20% in healthcare equipment and supplies, 15% in healthcare providers and services and 14% in biotechnology.

Mr. MacDonald said data on efficacy of various Covid-19 vaccines under trial should be available in November giving an indication of which ones hold the most promise. But he believes the winner in the vaccine race will unlikely see a large financial gain, but rather a perceptual one.

“We don’t think the financial gains will be material, but the overall efforts by the industry have shifted sentiment positively towards the sector.”

Mr. Macdonald said there are three long term trends favouring healthcare:



#1   Aging Populations 
This is a developed market phenomenon. An older demographic spends more money on health, including drugs and surgical procedures.

#2   Emerging Market Maturity 
China and India’s healthcare expenditures going back to 2000 have been growing at about 14% compound annual growth rate, Mr. MacDonald said, almost triple that of the United States. This is being driven by higher demand for basic services and healthcare insurance.

#3   Technological Innovation
This includes such things as robot assisted surgeries, new medical devices, equipment and drugs. This also applies to biopharma and drug development “where we really think we’re in the early innings of a very long game of innovation and discovery,” he said.

In the short term, three other forces at work:

#4   Historically Low Valuations 
Uncertainty about the pandemic’s economic impact has caused earnings expectations for the broader market to decline. This has caused the price to earnings ratio to expand, based on 2021 earnings estimates.

But looking back to other periods of recession and expansion, the lesson has been that the health care sector has consistent earnings in good times and bad. It is a ‘superior good’, something we need in good times and bad. This is seen as we look at expectations for solid earnings through 2021, Mr. MacDonald says, yet the price to earnings ratio compared to the market is at a very large discount.

“We don’t think the near 20-year discount on the healthcare sector is warranted and I suspect it will be temporary.”

#5   US election Politics
Regardless of who takes control of Congress, the Senate and the White House, change will be at the margins because the American healthcare system is so complex. It has vested interests on all sides which makes it is difficult to effect change.

“We have gone back to the last eight election cycles and there isn’t a real difference in the sector’s performance regardless of which side wins,” Mr. MacDonald said.

#6   Halo Effect
Mr. MacDonald said the political rhetoric south of the border has been subdued since the onset of the pandemic because of the quick response by drug companies to develop vaccines and to make them affordable. This may lead to a sustained change in investor attitudes, he believes.

Mr. MacDonald said managed care is one area of growth. While Canadians might compare managed care to health insurers like Manulife Financial or Sunlife, in the US., these companies have a much broader reach. They offer employee benefits, employ networks of physicians and pharmacies and administer Medicare, Medicaid and Medicare Advantage. The latter allows people to upgrade their Medicare plan.

One of the dominant managed care players is UnitedHealth Group Inc., a Minnesota-based company with $250 billion in revenues and a market capitalization of approximately US $296 billion. It is the number one administrator of Medicaid and number two in Medicare Advantage.

“It has a very diverse businesses with bipartisan support. It has a business that has clarity and visibility,” Mr. MacDonald said.

Summarizing his presentation, he noted” “Over the medium to long term, we’ve got permanent non-cyclical growth dynamics. In the shorter term the political landscape is creating opportunity and the valuations are attractive. And we don’t think there’s going to be systemic change whoever wins the election.”


Commissions, management fees and expenses all may be associated with investing in HARVEST Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made with guidance from a qualified professional. Certain statements included in this communication constitute forward-looking statements, including, but not limited to, those identified by the expressions “expect”, “intend”, “will” and similar expressions to the extent they relate to the Investment Fund. The forward-looking statements are not historical facts but reflect the Fund’s, Harvest and the Manager of the Fund’s current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Although the Fund, Harvest and the Manager of the Fund believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. The Fund, Harvest and the Manager of the Fund undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

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