Page 22 - DIY Investor Magazine | Issue 33

THE INEVITABILITIES: DEATH AND TAXES
Biotech has had a rough ride lately, but as the world gets older and richer our analysts think that long term secular growth is inevitable.....
Thematic investing is alluring to many long-term investors;
be sure of a theme, pick the moment (or average in) and let compounding do its thing. The best themes should have permanence and ubiquity, offering a strong, sustained tailwind to returns.
Investing in a theme through single stocks exposes investors to specific risks that an individual company may not capture the benefits of the theme or that management score an own goal despite secular growth.
It is also rare for a single company to retain a competitive advantage over many years, with innovation and disruption from competitors potentially eroding it. Investors in single stocks to express a theme, have to be very lucky or chop and change as the competitive environment changes.
18th C actor Christopher Bullock has been quoted, “’Tis impossible to be sure of any thing but Death and Taxes” (The Cobbler of Preston, 1716). Selling shares to recycle capital within a theme potentially exposes investors to one of life’s inevitabilities – tax.
Investing in a trust exposed to a theme gives the best of both worlds – actively managed, diversified exposure and deferment of capital gains tax until the share is sold. Investment trusts may help defer CGT, but it would be a bold claim that they can help defer the other of life’s inevitabilities.
However, several trusts do seek to benefit from humanity’s propensity to spend in an attempt to defer death (and other ailments) and our ingenuity and innovation in developing solutions to health issues.
The US is the largest healthcare market in the world, with many of the most innovative companies listed on US equity markets.
Over sixty years, the absolute level of spending on healthcare has been increased at a staggering annual rate; compounding the growth shows US healthcare spending has risen by
a phenomenal 137x in absolute terms, with a strong and consistent pattern established.
Most developed economies are spending an increasing amount on healthcare each year in real terms, but also as a proportion of their GDP. The World Health Organisation (WHO) says, “Global spending on health more than doubled in real terms over the past two decades, reaching US$ 8.5 trillion in 2019, or 9.8% of global GDP”.
WHO’s ‘Global Expenditure on Health – Public Spending on the Rise (2021)’ report found a strong correlation between income level and health spending; high-income countries spend the most proportionate to GDP on health.
This has two implications for investors. Firstly, to access the best opportunities, healthcare companies do not have to risk political and operational issues in emerging markets.
Secondly, as emerging markets become richer, there should be a significant accelerator effect from EM GDP growth, with an increasing proportion of that GDP spent on healthcare; this should give investors’ confidence that the healthcare investment runway remains long.
DIY Investor Magazine · Apr 2022 22