US equities fund managers see opportunities in healthcare reforms

Overall weightings to the healthcare sector have been increasing among U.S. equities funds, says Standard & Poor's Fund Services in its latest update on the sector available at fundsinsights.com.

"Amongst managers, the majority view with regard to healthcare seems to be one of waiting for further evidence given the number of moving parts involved in the reforms," said Simon Dorricott, lead analyst on the sector at S&P Fund Services. "Decisions are primarily being made based on a neutral outlook with regard to the reforms, with investors continuing to focus on standard fundamental arguments."

Overall weightings have increased during the year to date as a number of teams have taken advantage of the depressed prices in this sector. "Lower prices have been driven by the uncertain effects of the healthcare overhaul and the continued focus of the market on more cyclical and lower quality stocks," explained Dorricott.

Fund managers increasing their weighting generally believe that valuation levels more than compensate them for the risks involved. As a result, teams such as those managing the Threadneedle American Select Fund and Calamos Growth Fund have increased their exposures. Using the same thinking, the team at MFS Meridian Funds - U.S. Value Fund increased weightings in late 2009. Teams that have felt more confident in conducting and backing their analysis of the situation include Manning and Napier (GAM Star U.S. All Cap Equity Fund) and Waddell and Reed (Pictet - U.S. Equity Growth Selection).

"The GAM management team chose to focus on healthcare technology, life science tools and diagnostics companies, where increased volumes should result in demand but the negatives should be limited," said Dorricott. "Waddell and Reed have a slightly different approach adding to generics stock Teva and Allergan, which is involved in a variety of products including cosmetic areas that are not covered by insurance."

Aside from healthcare, the overall view from fund managers is reasonably positive, although all recognise that future growth is going to be more difficult with a focus very much on revenue growth going forward.

"Managers are sticking with, or moving towards, companies that are able to offer longer-term growth, with strong balance sheets," said Dorricott. "Stockpicking is expected to become more important as the market moves from a recovery focus to seeking sustainable growth, with the gap between winners and losers becoming larger."

Although the economic recovery appears to be on track say management teams, they are closely monitoring employment levels, with improvements deemed necessary to sustain the level of consumer spending seen so far. There is also some concern over the potential for early rate rises from the Fed, with managers agreeing that they should come later rather than sooner.