Global Healthcare|15 Aug 2024

Is the US election a risk for healthcare stocks?

Gareth Powell

Head of Healthcare, Global Healthcare Team

James Douglas

Fund Manager, Global Healthcare Team

We are heading into another US presidential election in November, with campaigning already dominating the news cycle on the television, internet and social media. With President Biden stepping down, polling suggests significant change in support away from Donald Trump to Vice President Kamala Harris, the Democrats’ presidential candidate.

The perception among investors is the healthcare sector always performs poorly in a US presidential election year. However, looking back over the past 35 years, there are only three occasions (1992, 2008 and 2020) where this has proven to be the case, with fears of political change causing the sector to significantly derate and all the damage largely occurring after the election result. The commonality between these three years was fear over the results in Congress, with the Democrats dominating both the House and Senate and therefore potentially able to make significant policy changes in healthcare with greater government involvement in the sector.

Why US politics matter

The US healthcare market is the largest in the world and therefore important for many of the companies in the sector which tend to aim to operate on a global basis as they become bigger. Ex-US companies will typically have a major focus on the US market again because of its size. The payers in the US for healthcare are roughly 50% commercial insurance and 50% government-sponsored. This allows the US to be a dynamic market where innovation is rewarded and investors can generate decent returns if they back the right companies. The biggest fear for investors is that this situation changes with the government becoming an ever more significant payer for healthcare and negatively impacting the potential for innovation.

The perception that healthcare always does badly in presidential election years is not correct

This explains broadly why a US Congress dominated by the Democrats could lead to a valuation derating for the sector, and why it was significant in the three years mentioned earlier. However, it is still rare and the perception that healthcare always does badly in presidential election years is not correct.

What will the 2024 election bring?

We make no attempt to guess the outcome of this election – as polling organisations have recently shown, it is incredibly hard to predict. Trump saw a significant jump in support after the assassination attempt, alongside Biden struggling in public appearances. However, since Kamala Harris has stepped up as the likely candidate for the Democrats, the polls have narrowed. That is as far as we will comment on the presidential race. More importantly for the healthcare sector is the outcome in Congress and here it seems there is a very low probability that one party will have a significant lead in both the House and the Senate. Therefore, our conclusion for this election is healthcare should continue to do well; more important for performance are macroeconomics and fundamental drivers.

Investing in healthcare

We are very bullish on the outlook for healthcare stocks currently. The stocks are trading at a discount to the market, fundamentals are robust and most importantly the macroeconomic outlook is becoming a tailwind rather than the headwind it has been over the past 18 months. Fundamentally, utilisation is elevated and backlogs are significant, leading to an extended period of strong growth for the relevant companies – 2023 was the second biggest year for new product approvals in the US in 30 years. This sets the stage for a raft of new product cycles. The key launches we are focused on are drugs for obesity, Alzheimer's, respiratory disorders including COPD (chronic obstructive pulmonary disease, or ‘smoker’s cough’) where there is a huge unmet need, and a new class of devices for atrial fibrillation which should be a multi-billion dollar category. There are many others that should accelerate the sector's revenue, earnings and operating leverage which will hopefully drive stocks higher.

As such, we believe we now have meaningful drivers in place for a new bull market in healthcare.

Gareth Powell, CFA
Gareth joined Polar Capital in 2007 to set up the Healthcare team. Prior to Polar Capital, Gareth worked at Framlington, where he began his career in investment management in 1999. Soon afterwards, he joined the Healthcare Team in 2001 and helped launch the Framlington Biotech Fund, which he managed from 2004 until his departure.
Gareth studied biochemistry at Oxford, during which time he worked at Yamanouchi, a leading Japanese pharmaceutical company (later to become Astellas). As well as this, Gareth worked for the Oxford Business School and various academic laboratories including the Sir William Dunn School of Pathology and the Wolfson Institute for Biomedical Research.
James Douglas, PhD
James joined Polar Capital in September 2015 and is a Fund Manager for the Healthcare team. He was appointed co-manager for the Polar Capital Global Healthcare Trust in August 2019.
Prior to joining Polar Capital, James worked in equity sales specialising in global healthcare at Morgan Stanley, RBS and HSBC. James also has equity research experience garnered from his time at UBS, where he worked as an analyst in the European pharmaceutical and biotechnology team. Before moving across to the financial sector, he worked as a consultant for EvaluatePharma.