"While many unknowns remain regarding the economic impact of the coronavirus, I think health care fundamentals should remain resilient and demand could return faster than in other parts of the economy," says Eddie Yoon, health care sector leader and portfolio manager of Fidelity® Select Health Care Portfolio (FSPHX).
Yoon says he remains bullish on health care in general because health care innovations should play a key role in helping the world emerge from this global pandemic. This should drive further investment in life sciences research and usher in the next era of growth across the sector.
However, COVID-19 has affected groups within health care differently, Yoon says. The rate of elective surgeries is down in the short term, for example, and demand for prescription drugs remains roughly the same. "The outbreak and spread of COVID-19 have stressed the resources of some busy hospitals, and demand for personal protective equipment is very high," he notes.
Importantly, he says some companies should see both cyclical and structural benefits from COVID-19.
As for managed care, COVID-19 could accelerate the pace of change to value-based payment models, which should create a better patient experience at lower cost, according to Yoon.
Yoon points to the fund's top holding on April 30, UnitedHealth Group (UNH), as a company that appeared to be managing through the crisis. He says the company's management has done many things to offset the economic hardship that many customers and associates have faced during the pandemic, such as accelerating payments to health care providers, paying for COVID-19-related expenses without co-pays, discussing potential premium rebates to plan sponsors, maintaining its workforce at full pay, and not requesting any federal aid from the initial stimulus bill.
While there were many moving pieces that affect earnings, Yoon says the company's diversified business still allowed it to surpass first-quarter earnings expectations. In early spring, Yoon increased the fund's stake in UnitedHealth and Humana (HUM), and established a new stake in rival managed care company Anthem (ANTM).
Beyond managed care, Yoon says recent market volatility created buying opportunities in some smaller companies for which he sees long-term potential.
Fidelity® Select Health Care Portfolio held securities mentioned in this article on April 30, 2020. As of this date, UnitedHealth accounted for 8.21% of the fund's assets, Humana made up 4.55%, and Anthem 1.12%.
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