Healthcare Investment Opportunities for the Long Term

By Markets Fool.com


There's a lot of long-term money to be made in healthcare. Photo:TaxRebate.org.uk

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If you're looking for healthcare investment opportunities for the long term, you're sniffing around in a very promising field. The healthcare industry has powerful demographics on its side: As our population grows and ages (with people living longer), it will require more healthcare -- more prescriptions, more drugs, more lab tests, more nursing homes, and so on.

Thus, here are a few healthcare investment opportunities for the long term to consider:

Biotechnology
One of the most exciting corners of the healthcare world is biotechnology, where gobs of companies, many of them quite small, are working on developing new drugs and therapies to treat all kinds of diseases and conditions. Just one FDA-approved strong-selling drug can send a biotech stock soaring. But for those without a strong science background, and even for those with one, it can be a bit of a risky field, as many drugs in development never end up getting approved by the FDA, despite years of clinical trials and possibly hundreds of millions of dollars of development. Thus, it's wise to focus on the bigger players and the ones with rich pipelines.

A smart way to invest in biotech is via an exchange-traded fund (ETF) that's focused on biotechnology, such as theiShares Nasdaq Biotechnology Index ETF. It's a well regarded investment, spreading its assets over roughly 150 stocks. Despite that big number of holdings, its top 10 holdings take up close to 60% of its assets, and they include most of the big names in biotech, such as Gilead Sciences (treating HIV, hepatitis, and cancer, among many other things), Amgen (with major drugs focused on cancer, arthritis, and dialysis), Biogen (tackling multiple sclerosis, cancer, hemophilia, and more), and Celgene (focused largely on cancer and inflammatory diseases). Thus, you don't have to try to figure out which companies will be the big winners in biotech, because this ETF will have you in all of the main players. Its expense ratio (annual fee) of 0.48% is competitive, especially when compared with mutual funds. The ETF has averaged annual gains of 18.5% over the past decade and 34.1% over the past five years. Not bad, eh?

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An even bigger basket
You can aim even wider than biotechnology with an ETF such as the Vanguard Health Care ETF , which sports an ultra-low expense ratio of 0.12% and contains around 300 different stocks, with its 10 biggest holdings making up about 45% of assets. They include pharmaceutical giants such as Johnson & Johnson, Pfizer, Merck, biotech giants such as Gilead Sciences and Amgen, and health insurance giant UnitedHealth Group. The ETF features very low turnover, meaning that it will patiently wait for its holdings to perform, and that strategy has worked, with the ETF averaging annual gains of 30.7% over the past three years and 11.8% over the past decade. Its main focus is pharmaceuticals and biotechnology, but it also has 14% of its assets in healthcare equipment and 8% in managed healthcare, among other niches.

HCP owns doctors' offices, among other medical properties. Photo: Vic, Flickr

A healthcare real estate specialist
A final consideration is a healthcare investment opportunity for the long term -- in real estate. One of a bunch of real estate investment trusts focused on healthcare is HCP . I'll draw your interest to it by mentioning its dividend yield first -- which was recently a whopping 5.7%. (Its dividend history features 30 years of uninterrupted dividends and annual dividend increases.) It owns senior housing, medical offices, life science buildings, nursing homes, and hospitals, which it buys, develops, leases, manages, and sometimes sells. Its properties are geographically diversified, too, reducing the risk of a particular region going through tough times and hurting the company's performance.

HCP has rewarded investors well over the years, averaging an annual gain of about 12% over the past 20 years. One risk it faces is rising interest rates, which can put pressure on its profit margins. Those margins are quite high, though, with gross margins recently above 80% and net margins well in the double digits. That reflects a solid, high-performing outfit. In its last quarter, revenue grew by nearly 15% year over year, with occupancy rates for its medical office and life sciences properties topping 90%.

There are many other compelling healthcare investment opportunities for the long term, besides the ones above. Whether you go broad or drill down into particular companies or niches, it's smart to consider having some exposure to healthcare in your portfolio.

The article Healthcare Investment Opportunities for the Long Term originally appeared on Fool.com.

Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, ownsshares of Celgene, Gilead Sciences, and Johnson & Johnson. The Motley Fool recommends Celgene, Gilead Sciences, Johnson & Johnson, and UnitedHealth Group. The Motley Fool owns shares of Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.