Fidelity Portfolio Manager Sean Gavin is finding compelling investment opportunities in the health care sector, especially in the managed-care industry, where stocks widely lagged the broader U.S. equity market in 2023.
“The weak return for managed care reflects the market’s concern about a drop in Medicare reimbursement and an increase in the utilization of outpatient care,” explains Gavin, who manages Fidelity® Blue Chip Value Fund (FBCVX). “But I think this sell-off may be misguided, and that investors are overreacting to what I consider a short-term challenge for this segment.”
As manager of the large cap, value-oriented strategy since 2014, Gavin invests in companies when he sees significant price dislocation, believing that a stock’s market value will move toward its intrinsic (fair) value over time.
In his view, many investors insufficiently recognize that managed-care companies operate on annual contracts, which gives them flexibility to regularly adjust pricing and pass through their additional costs or adjust their benefits, as the market allows, to boost profitability over the long term.
Gavin appreciates the historically steady nature of the managed-care business, as demand for health care services is inherently more predictable and less vulnerable to economic cycles than other sectors. He sees this as a particularly valuable attribute in a weakening economy.
“In this challenging economic environment, where we don’t know whether the Federal Reserve will achieve a “soft landing” after its aggressive rate-increase campaign, I see managed-care stocks as defensive investments with the potential to generate an attractive return over time,” says Gavin.
Also appealing to Gavin is that lowered stock valuations give managed-care providers the opportunity to buy back their own stock at an attractive price, offering a path for these companies to boost their intrinsic value.
As of November 30, the fund had meaningful stakes in a handful of managed-care providers—Cigna (CI), Centene (CNC), Elevance Health (ELV), UnitedHealth Group (UNH), and Humana (HUM)—totaling roughly 16% of its net assets.
“I’m happy to hold these stocks in the fund through their current period of difficulty, particularly given their depressed valuations, and wait patiently for what I believe could be favorable long-term results,” says Gavin.
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Sean Gavin is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Mr. Gavin manages Fidelity Value Discovery Fund, Fidelity Blue Chip Value Fund, Fidelity Blue Chip Value ETF, Fidelity Advisor Equity Value Fund, Fidelity Advisor Value Leaders Fund, Fidelity Series Value Discovery Fund, and FIAM Target Date Value Discovery Commingled Pool.
Prior to assuming his current position in January 2012, Mr. Gavin was a research analyst in the Equity division. During this time, he worked as a diversified analyst on the Value team, as a food and beverage analyst, and as a transportation analyst.
Before joining Fidelity in 2007, Mr. Gavin was an assistant portfolio manager at Pioneer Investments and a research analyst at both Boston Partners Asset Management and at Delphi Management. He has been in the financial industry since 1998.
Mr. Gavin earned his bachelor of arts degree in mathematics from Oberlin College and his bachelor of music degree in trombone performance from the Oberlin Conservatory. He is also a CFA® charterholder.