Potoker joined UBS in early March 2020 as part of a renewed focus on healthcare. Previously he worked at multi-billion-dollar long/short funds JL Advisors and Karsch Capital Management as the health care sector head. He says investors will want to keep an eye on these four trends.
1. Biopharma innovation
“There is currently more innovation and investment driving the health care sector than I’ve has seen in the last 20 years,” Potoker says. “Biopharma is an innovative space with all kinds of new products and unmet need.”
Over the last five to seven years, Potoker has observed a wave of innovation and investment in biotechnology as companies search for cures to rare and debilitating chronic conditions. “It’s quite dynamic with approaches to treating a wide array of previously difficult-to-treat conditions,” he says.
2. Post-election market stability for the health care sector
Health care stocks currently trade at historically low valuations. This is common during election years when there is uncertainty around policy outcomes, according to Potoker. “We’ve seen these cycles in the past,” he says. “They are actually good buying opportunities because post-election moderate policy changes typically emerge that leave existing end markets largely intact. Once there is more clarity at the end of an election cycle, investors typically see less uncertainty and health care tends to outperform.”
Potoker sees this playing out now the way it did in the 2008-2009 period, an election and policy cycle during which it became increasingly clear that a health care reform effort would likely emerge after the 2008 election. Fear and uncertainty were reduced after the election, once the outlines of moderate policy changes became clearer in mid-2009, and the sector subsequently outperformed for the next five years, he says.
3. Continued uncertainty about COVID-19 vaccines
“Once the COVID-19 genome was quickly mapped, an unprecedented public-private effort began to develop vaccines,” says Potoker. It is the CIO’s house view that by late spring to early summer 2021, multiple vaccines will be widely available; nearer-term, investors are looking for evidence that one or more of those vaccine candidates will produce clinical data showing efficacy in preventing COVID-19, Potoker points out. “We should see the key pivotal clinical trial data for these initial vaccine candidates in the fourth quarter of 2020,” he says.
“It’s happening in such record time,” he says, “and there are many questions about these vaccine candidates that won’t be answered for another year, specifically in terms of long-term safety and durability. From a market standpoint, investors want to see real evidence that vaccines can significantly reduce a person’s likelihood of contracting COVID-19.”
4. Long-lasting changes caused by the pandemic
Some new ways of life adopted during the pandemic will continue long after 2020. In the health care industry, Potoker believes there will be continued trends in telemedicine and diagnostic testing. There was already a fast telemedicine adoption curve for patients, but doctors had been more reluctant to treat people over a screen. However, once they found themselves devoid of patients and income during the COVIID pandemic, physicians quickly adapted, and now are being reimbursed for telehealth patient visits.
“Once they made the leap,” Potoker says, “they were far more comfortable with telemedicine and began to see it as an efficient way to monitor patients remotely over time.” He anticipates some slippage backward in terms of telemedicine when doctors go back into their offices, but believes it will be a modest slowing and that long-term growth in telemedicine will be strong.
Testing will continue for the foreseeable future, he adds. While the volume of COVID-19 tests people will receive through 2020 might not be sustained at peak pandemic levels, the overall volume of testing will continue at much higher levels than pre-pandemic. Potoker believes that with questions about vaccine durability and effectiveness, schools, employers, entertainment venues, and transportation systems may all drive significant long-term demand for diagnostic testing, and that public acceptance of widescale testing could well move beyond just COVID-19 post pandemic.
Main contributor: Kerry Breen
To learn more about the UBS Chief Investment Office’s outlook for the health care sector, contact your UBS financial advisor for the in-depth report title: Health care: Sector outlook and equity preferences, published 17 Sept. 2020.