The changing face of healthcare: How to invest in the digital health revolution | BetaShares

The changing face of healthcare: How to invest in the digital health revolution

BY BetaShares | 6 April 2022
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Due to population ageing and rising income levels, healthcare spending is expected to continue to grow faster than global economic output over coming decades.

Spending is also likely to increasingly favour digital health solutions over the traditional way of delivering healthcare, as technological innovation helps improve efficiency, expand access, and shift the focus from treatment to prevention.

Investors can now consider the Digital Health and Telemedicine ETF (ASX Code: EDOC) (insert link), which provides exposure to the leading global players in this rapidly evolving area of the healthcare industry.

Rising healthcare spending

Healthcare spending has been growing strongly in many economies, and is projected to increase further in the coming years.

There are several factors underpinning this growth. For starters, healthcare spending tends to rise along with age and living standards. The global population is ageing: United Nations projections indicate the percentage of the population aged over 60 years will rise to 28% by 2100, from only 13% in 2017. Thanks to productivity growth, per-capita incomes also continue to grow, with strong growth especially anticipated in emerging countries.

According to OECD projections[1], health spending among developed economies is forecast to reach 10.2% of GDP by 2030, compared with 8.8% in 2015. In the U.S., healthcare spending is projected to reach 20% of GDP by 2030 – twice the OECD average.

Healthcare Spending (% of GDP) by OECD: Projections from 2015 to 2030

Healthcare Spending (% of GDP) by OECD - Projections from 2015 to 2030

Source: Healthcare Spending Projections to 2030, OECD, May 2019. Actual outcomes may differ materially from projected outcomes.

Scope for technological innovation

The traditional way of delivering health services is ripe for technological innovation and disruption.

For starters, seeing and assessing patients has long relied on direct human-to-human contact. Cheap and easy to use video-conferencing technologies – sometimes referred to as ‘telehealth’ – now mean many of these interactions can be conducted online.

Adoption of telehealth services skyrocketed during the COVID pandemic when physical access to health professionals was restricted, and has remained high since the pandemic eased. According to Fortune Business Insights, the global telehealth market was worth US$90 billion in 2021, and is projected to grow to US$636 billion by 2028, implying compound annual growth of 32%.

Global Telehealth Market

Another source of disruption is real-time remote monitoring of patients through internet-connected medical devices and wearables. This reduces the need for patients to travel to hospitals or doctors for check-ups, and can result in more timely interventions when patient conditions warrant.

The digitisation and storage of patient health records is another innovation that promises to radically improve care, by making patient histories and other critical information readily available.

Data systems can also improve the efficiency of care by allocating scarce medical resources – such as beds, doctors and equipment – to where they are most needed and by reducing the incidence of unnecessary or inadequate treatments. The OECD estimates that US$1.3 trillion, or 20% of annual healthcare expenditures across OECD countries, reflects inefficiencies due to poor administration[2].

Exposure to leading digital health innovators

The index EDOC aims to track provides exposure to up to 50 of the leading digital healthcare companies around the world.

To qualify for index inclusion, companies must derive at least half their revenue from the digital health industry, covering areas such as telehealth, medical devices, wearables, remote patient monitoring and healthcare improvement solution software.

On a month-end basis, from end-March 2018 to end-February 2022, the Index which EDOC aims to track has delivered annualised $A returns of 23.0% compared with 13.2% for the MSCI World Ex-Australia Index.[3]

EDOC performance - February 2022

With the rise in global interest rates and inflation over the past year, high-growth technology companies within EDOC’s Index have experienced a relative performance pullback since late 2021, presenting a lower entry point for investors interested in this opportunity.

Summary

Due to population ageing and rising living standards, demand for healthcare services is expected to continue to rise as a share of global GDP over coming years. As a highly fragmented and labour-intensive service, healthcare remains ripe for technological innovation that could reduce costs, improve quality and expand access for millions across the globe.

The BetaShares Digital Health and Telemedicine ETF (EDOC) aims to provide a cost-effective and easily accessible way to gain exposure to some of the leading innovators in the digital health sector.

There are risks associated with investment in EDOC, including market risk, sector risk, international investment risk and concentration risk. The Fund’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its more concentrated exposure. The Fund should only be considered as a component of a diversified portfolio. For more information on risks and other features of the Fund, please see the Target Market Determination (TMD) and Product Disclosure Statement, available at www.betashares.com.au.


1. Health Spending Projections to 2030: New results based on a revised OECD methodology. OECD Health Working Papers No. 110. May 2019.
2. OECD, “Healthcare in the 21st Century,” 2019.
3. Past performance is not indicative of future performance of the Index or ETF and does not take into account ETF fees and expenses. You cannot invest directly in an index. The Index’s performance can be expected to be more volatile (ie vary up and down) than a broad market index.

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