Healthcare stocks and ETFs are outperforming the broader market this year, but as the KraneShares MSCI All China Health Care Indes ETF (KURE) proves, that theme isn’t confined to the U.S.
KURE invests in a variety of publicly traded shares of Chinese issuers, including A-Shares, B-Shares, H-Shares, P-Chips, and Red Chips – the portfolio essentially includes companies listed on Mainland China, Hong Kong, and the U.S. Furthermore, the Chinese health care companies must be classified under the Global Industry Classification Standard. The index may also include small-, mid- and large-cap companies.
KURE is up 16.34% year-to-date compared to a 7.33% loss for the MSCI China Index, a benchmark that allocates just 5% of its weight to healthcare stocks. KURE is outperforming U.S. benchmarks, too.
“The coronavirus pandemic spread across the world indiscriminately, disrupting lives, and gripping global markets,” according to a recent research piece from KraneShares. “In the first quarter of 2020, US equities experienced substantial losses not felt since the financial crisis of 2008. Yet, amid all the volatility, many China stocks and ETFs were resilient, and the China healthcare sector even saw positive returns. In particular, the KraneShares MSCI All China Healthcare ETF (KURE) was up 2.9% for Q1 2020; by comparison, the S&P 500 fell 19.6% over that same period.”
The Chinese health care industry may be a growth opportunity, especially given China’s large population. The health industry in China is also far less developed than those in Western countries, so the emerging Asian country will have to invest and expand its health care facilities and infrastructure to meet the growing demand from a large population.
“Much of KURE’s recent performance stems from the coronavirus outbreak, which catalyzed growth within China’s healthcare sector,” according to KraneShares. “Companies involved in healthcare IT, equipment manufacturing and distribution, pharmaceuticals, and traditional Chinese medicine were vital in aiding coronavirus efforts.”
Another advantage of KURE is that the fund isn’t beholden to the same political pressures – drug prices, Medicare for All, etc. – as U.S. equivalents. Like the U.S. healthcare sector, China’s healthcare industry is largely focused on the domestic economy, reducing its vulnerability to trade tensions. Plus, the fund is positioned to thrive even as COVID-19 wanes.
“Beyond the coronavirus, we believe China’s healthcare sector is poised to grow further. China has historically underspent on healthcare, with significantly lower per capita spending compared to both other major economies and emerging markets,” said KraneShares. “More healthcare spending is necessary to support the country’s aging population, which is projected to increase the burden of chronic disease by 40% by the year 2030.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.