A ‘Medicare for All’ plan tabled by the Democrats in the US government has created a buying opportunity in US healthcare stocks not seen since 2016, according to M&G North American Dividend manager John Weavers.
Democrats in the House of Representatives are pushing to expand the US government-run healthcare program Medicare to all Americans through a Medicare for All Act 2019, which currently has 107 sponsors. If the bill is a successful it will see the US move from a system in which millions of people are currently uninsured to one where everyone is covered.
The plan has resurrected fears around the impact of Medicare expansion on healthcare stocks, echoing those sparked by Hillary Clinton's run for the presidency.
Clinton had backed an expansion of the Affordable Care Act, also known as Obamacare, which would have created a government-sponsored health insurance option, spoke out on high prices charged by drug firms.
Weavers (pictured) said the Democrats’ latest healthcare drive was having a similar effect on healthcare stocks.
‘The Democrats have introduced a Medicare for All bill that makes the government the sole payers for healthcare and removes a significant part of [healthcare stocks’] business earnings,’ he said.
‘I personally do not think it has a chance of success, but new risk has knocked valuations and [healthcare stocks] are currently looking attractive,’ he said.
The ‘managed-care’ sub-sector of healthcare stocks has seen a sharp sell-off in the aftermath of the Medicare for All bill, including two stocks held by Weavers.
Shares in healthcare insurers UnitedHealth (UNH.N) and Anthem (ANTM) have fallen on the prospect of a Medicare expansion eating into their customer base.
For Weavers, investing in healthcare stocks inevitably means taking political heat and he believes the latest dip is a buying opportunity
‘Healthcare spice is politics,’ he said. ‘Most sub-sectors, with the exception of life sciences, have systemic risk from political interference and we see that coming through in valuations.’
He added: ‘In 2016 everyone was worried about Clinton and that created a valuation opportunity to buy [healthcare stocks] at low multiples.
‘We are seeing the same thing today – an opportunity to buy back into these companies.’
‘Given the demographic trends I the US, there is a huge incentive and need for greater [healthcare] spending and more services to be provided, and the government is not in a position to facilitate that, and companies will have greater demand for their services over the next two decades and will be responsible for keeping costs down in the system.’
M&G North American Dividend is one of a small band of funds in the Investment Association's North America sector focused on income. Three-year returns of 63% place the fund ahead of rivals like Neptune US Income, JPM US Equity Income and Loomis Sayles US Equity Income.