Traditionally defensive health care stocks and sector exchange traded funds also tap into a new group of growth investment plays.
Some of the best-known technology venture capitalists and prominent money managers are investing in companies that gather and analyze healthcare data, capitalizing on the potential growth in electronic record keeping and wider acceptance of personal health devices, Reuters reports.
So far this year, venture capital funding for healthcare tech-related firms is at $2.3 billion, up 176% for the same period year-over-year, with most of the investments going into payment management and data analytics.
In contrast, funding for biotechs increased 28% for the year ended June 30, compared to the same period year-over-year.
Skip Aylesworth, manager of the Hennessy Technology fund, has allocated a quarter of his portfolio to health tech-related companies due to the growth in U.S. healthcare spending. For instance, Aylesworth has targeted drug distributor McKesson Corp (NYSE: MCK) due to its IT services for hospitals. The broad healthcare ETF, Guggenheim S&P Equal Weight Healthcare ETF (NYSEArca: RYH), includes a 1.9% weight toward the company. [Equal-Weight Works With Health Care ETFs]
Zachary Shafran, the lead portfolio manager of the Waddell and Reed Science and Technology A Fund and the Ivy Science and Technology fund, has taken bets on health insurer UnitedHealth Group (NYSE: UNH) and device maker Boston Scientific Corp (NYSE: BSX).
RYH also include a 1.9% tilt toward UnitedHealth and a 1.7% position in Boston Scientific. Alternatively, investors can also focus on medical equipment and supplier through the iShares U.S. Medical Devices ETF (NYSEArca: IHI), which includes a 3.5% position in Boston Scientific.
“Medical technology, biotechnology, medical records and pharmaceuticals are among the greatest innovators and early adopters of new science and technology, so we are paying particularly close attention to companies in those areas,” Shafran said.
For access to the biotech and pharma sectors, investors can take a look at the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) and the PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP). Broad healthcare ETFs also include exposure to the sub-sectors, with RYH holding a 14.3% position in biotechnology and 23.4% in pharmaceuticals. [Biotech ETFs Look to Build on Hot August Returns]
As the healthcare sector grows more sophisticated, technological breakthroughs will help keep the sector on the cutting edge.
“The line between what is healthcare and what is technology has become blurred,” Robert Stimpson, the lead portfolio manager of the Black Oak Emerging Technology fund, said in the article.
Despite the more risky nature of the tech sector, healthcare technology stocks are being supported by better fundamentals. Specifically, observers point to the aging population in the U.S and Europe, along with the transition to digital health records mandated under the U.S. Affordable Care Act.
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.