PA Future spoke to Joanna Frontczak, analyst within the impact and investing team at Vontobel Asset Management, about the importance of generating a positive impact in the healthcare space, especially in a time when our world is in a health and nutrition crisis.
Frontczak works on the firm’s Global Impact Equities fund – of which Pascal Dudle, head of impact investing, is the portfolio manager – and invests heavily in the healthcare sector. She explained how the portfolio is addressing health inclusion, where the challenges and opportunities lie in this space, and what sectors within healthcare she expects to gain traction for investors in the coming years.
Can you tell me about the Global Impact Equities fund at Vontobel?
The Global Impact Equities fund was launched in 2021 and combines environmental and social issues as a key differentiator. The fund has eight pillars, in which healthcare – or what we call good health and wellbeing – has the largest weight, and therefore, is our biggest focus. However, we also look at sustainable food and agriculture, responsible consumption and equal opportunities.
Within the healthcare pillar, we identify the challenges we see in the world – of which there are plenty – so we must be very specific about what we want to address. Some of these include, for example, high prevalence of chronic diseases in the world like obesity, diabetes and cancer. We invest in companies that specifically tackle these issues.
The fund takes women’s health very seriously. For example, we look for companies that innovate devices that help detect certain diseases much earlier and more efficiently so the problem can be addressed faster.
For example, two weeks ago we invested in Becton, Dickinson and Company (BD). It is an American company and is a very diversified business as it is not only exposed to diagnostics, but also basic hospital utensils. The company builds devices that can detect many different conditions, like PCOS.
As it is an impact fund, impact is always the first aspect that matters. It is not enough to say that a company’s products are helpful to treat certain diseases, but we have to measure to what extent this is true. For example, Vontobel invested in BD not only to expose the fund to prevention, but because the company produces many tests, for example for respiratory diseases, which we can measure the impact of.
It is important the investments that we make not only provide positive social impact, but come with good financial returns. This is something that investors are noticing is possible to achieve within that social impact.
Health inclusion is a big topic within healthcare. Is Vontobel investing in companies reaching those have little access to medical aid?
Healthcare is a tricky sector because it is linked to regulation, and depending on the insurance cover and policies in a given region, healthcare access differs. However, companies play a role in helping to provide equal access.
For example, we invest in Novo Nordisk, the seller of the anti-obesity drug, Wegovy. It has accessibility programmes to ensure people in low income economies can, for example, get insulin vials for less than $3, of which would cost over $20 in the US.
In terms of the healthcare gap, it depends on what diseases are being treated. There is a lack of innovative medications for rare diseases because it comes with a very high cost in terms of research and development. Yet, for Novo Nordisk and GLP-1 agonists that are used for both obesity and diabetes, the gap is slowly closing.
In 10 years’ time, there will be two billion people living with obesity and 700 million with diabetes. No healthcare system can sustain the cost of this because it is such a large number, however, it all comes down to an agreement between these companies and the government to make sure as many people can afford medication.
There is a lot of talk about Ozempic at the moment. What do you think of this weight loss injection that is being prescribed by national health systems? Will this help generations become healthier?
I am confident that Ozempic will help generations become healthier. For diabetes, it is evident. In the past, GLP-1 would not be a solution. So, when people were diagnosed with diabetes, they would be immediately put on insulin. Yet, now that we have GLP-1 drugs, it means you can use those drugs for 20 years before insulin is introduced. It prolongs a healthy life.
For obesity, it has been proven that that using these injections helps to reduce weight by around 18%, which is a high efficacy rate. Yet, we don’t know what the long-term effects are because it is still a new medication.
However, we do know that a reduction in weight is associated with a lower risk of cardiovascular and diabetes diseases. These drugs definitely help, yet, they must be combined with a healthy diet. What we have seen is that many other companies in the healthcare space cooperate with companies like Novo Nordisk to come up with healthier proteins because the drug makes you lose muscle. So, it should be combined with other solutions.
What are the latest innovations in healthcare?
The biggest innovation that is coming to the market is an oral solution. Injections, like Ozempic, means that people have to inject themselves once a week. Soon, we should see this in a pill format which is easier to administer, and ultimately the preferred solution. It is innovative because it is difficult to ensure that the same amount of drug in an injection is in a small pill.
Where are the challenges and opportunities in this space?
A lot of research is being done to find solutions for the biggest diseases such as cancer. There are many companies that invest heavily in the pharmaceutical and biotech space, however, there is no breakthrough yet. It remains a big challenge but there are glimpses of success.
For example, last year Eli Lilly was the first to come up with a drug that works with some side effects, so we are going in the right direction. This is the core of healthcare – the constant development of drugs. It will always be an inherited challenge for companies, yet challenges come with opportunities.
There are many opportunities in the pharmaceutical space. The key reason for this is because there are many differences in the pipeline of these companies and clinical trials. Vontobel positions stocks that are closest to coming up with solutions in that area.
The biggest opportunity lies within diagnostics. This is because it is cheaper and more efficient way of dealing with potential diseases. MedTech – such as implants or artificial knees – is gaining traction because the demand is there despite very few companies specialising in that area.
Where do you expect healthcare stocks to gain traction? What should investors be looking out for?
It is difficult to make a general forecast for healthcare because there are just so many sub themes, however, women’s health remains the focus of the fund. Diagnostics and MedTech are also two other areas that I expect to gain traction in the next few years because of the financial profile that comes with it. We are finding that these stocks provide the highest returns.
There is a growing interest in the social space and we have seen many clients request for funds that specialise in this area. It is possible to positively contribute to society, whilst simultaneously providing strong financial returns.
