Buffett bets billions on healthcare sector

November 18, 2020

Published by Harvest ETFs
(Managed by Harvest Portfolios Group Inc.)

Warren Buffett took a deep dive into healthcare stocks this summer betting not just on a COVID-19 vaccine, but more broadly on the prospects for the sector.

According to filings with U.S. Securities Exchange Commission, in the third quarter of 2020, his Berkshire Hathaway Inc. spent billions to buy stakes in big pharmaceutical names. The purchase of stock in AbbVie Inc., Bristol-Myers Squibb Co., Merck & Co. and Pfizer Inc. were part of the $4.8 billion Berkshire spent buying stock during the period.

The four companies are also core holdings for the Harvest Portfolios Groups’ Harvest Healthcare Leaders Income ETF(HHL:TSX).  The ETF holds 20 of the largest global healthcare companies with broad sector representation. About 45% of its holdings are in pharmaceuticals, 15% in biotechnology, 20% in healthcare equipment and supplies and 15% in healthcare providers.

The disclosure of Berkshire’s Pfizer holding – 3.7 million shares valued at $133 million at current prices (Nov 17) – came a week after the drug maker announced that its Covid-19 vaccine has been more than 90% effective in preventing cases of the virus. It was followed by the news that Moderna Inc., another company in the vaccine race, says its formulation is 94.5% effective.

Buffett’s move is not just about vaccines, but the broader prospects for the pharma space. Those prospects were explored by Paul MacDonald, Chief Investment Officer at Harvest Portfolios Group, in a recent webinar for advisors.   

Mr. Paul MacDonald, CIO & Portfolio Manager at Harvest Portfolios Group Inc., said the financial and scientific resources committed by Big Pharma towards a COVID-19 cure have created a halo effect for all companies. Beyond that, the prospects for the sector are bright and offer value, he said.

Mr. MacDonald said a number of trends favour healthcare:

  • Aging populations in developed economies mean an older demographic is spending more on drugs and surgical procedures.
  • Emerging market maturity means more healthcare spending as a portion of GDP. China and India’s healthcare expenditures are growing at a 14% annually, almost triple that of the United States.
  • Technological innovation is leading to such things as robot-assisted surgeries, new medical devices and drugs.
  • Historically low valuations mean opportunity. Valuations have shrunk as the pandemic has reduced surgeries and other hospital procedures.
  • US election result: Even with a change at the White House healthcare reform will be at the margins because the American system is complex with vested interests that make it hard to change things.

Mr. MacDonald summarized his presentation, noting that: “Over the medium to long term, we’ve got permanent non-cyclical growth dynamics in the healthcare sector. In the shorter term the political landscape is creating opportunity and the valuations are attractive.”

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