The modernisation of healthcare, particularly on home soil, is a long-term thematic that has the potential to deliver alpha, portfolio diversification, and risk reduction, according to Jolon Knight, investment specialist at Hyperion Asset Management.
Speaking at the 2024 Pinnacle Investment Summit last month, Knight argued that there is an “abundance” of opportunity within this market.
The Hyperion Australian Growth Companies Fund holds around a third of its allocation (31.4 per cent) in healthcare, including names like ProMedicus, ResMed, Cochlear, and Fisher & Paykel Healthcare.
In comparison, the fund’s benchmark S&P/ASX 300 Accumulation Index has a weighting of approximately 10 per cent to the sector.
Expanding on this, Knight said: “Most of the weight on the [S&P/ASX 300] index has been in financials, your banks and your resource companies, whereas Hyperion’s return profile and the companies within our fund are more predominantly weighted into the healthcare names.
“If we think about healthcare, which has the largest weight – over 30 per cent – you have some of the world’s leading healthcare providers that have long-term double-digit growth.”
Notably, ASX-listed Fisher & Paykel Healthcare and Cochlear were among the portfolio’s top four contributors over the year to June 2024, according to its latest update.
Labelling the double-digit growth as “very unique”, Knight highlighted that these tailwinds would be described as more of a novelty in other global markets.
“You don’t generally see this,” he said.
“When you look globally, the return profile of some of the biggest names are in the single digits, and they are very mature. So, you’re actually able to invest in some of the world-leading healthcare businesses right here in Australia.”
He continued that, in the domestic market, stocks like ResMed fit Hyperion’s criteria for “new-world structural growth leaders”, which it characterises as market disruptors with sustainable competitive advantages, structural tailwinds, and a large total addressable market, among other factors.
“We do think the abundance of growth gives you an unique opportunity to really invest in some of the world’s best businesses that are listed here in Australia,” Knight said.
Additionally, the investment executive outlined growth can be found beyond companies returning long-term double digits, with those that have no credible competition and a large global footprint.
“ResMed, Cochlear, Pro Medicus … we’ve owned them for a very long period of time. Again, really high-quality businesses, monopolistic in nature with no credible competitor,” he said.
“And then, when we think about the actual footprint where these companies are able to sell their products into – almost every single company within our product has a global revenue base.”
Knight pointed out that back in 2017, over half (55 per cent) of the revenue from its Australian Growth Companies Fund was garnered domestically, while 45 per cent of revenue hailed from offshore sources.
Since then, he said, the tide has turned; in 2024, some 77 per cent of revenue stemmed from international sources, while less than a quarter (23 per cent) was domestic.
“That’s why we really think the quality of a lot of the companies that we invest in has really increased over time,” Knight said.
