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Key Takeaways

  • The market for digital health technologies is expected to grow as virtual work and life surges amid the pandemic and attitudes toward healthcare regulations continue to relax irrespective of the U.S. election outcome.
  • The fields of immunotherapy and genomics could drive toward an inflection point as the search for an effective COVID-19 treatment and vaccine has accelerated the development of RNA therapeutics and personalized medicine.
  • Given this theme’s unique intersection of technology and healthcare, a megatrend approach that aims for diverse allocations could potentially offer more thematic exposure to these growing trends than traditional healthcare or technology sector benchmarks can.

Healthcare is top of mind for American voters with a global pandemic in full swing. The U.S. healthcare system has been forced to quickly evolve and voters will weigh COVID response alongside longstanding issues including drug prices and the Affordable Care Act (ACA).

The BlackRock Investment Institute sees healthcare policy as relatively stable in the first year of a potential Joe Biden administration — as opposed to early in the first terms of Presidents Barack Obama and President Donald Trump, when healthcare was a principal focus. This time around, COVID, economic recovery, and climate-related initiatives would likely take priority in 2021, in BII’s view.

But there are variables that could shift this calculus: The Supreme Court is scheduled to hear a case on the ACA a week after the election, potentially pulling the healthcare debate back to the front burner.1 Measures to curb drug price increases are a potential focus regardless of the election result. Yet BII expects only modest action against the backdrop of the pandemic, as drug makers are playing an important role in vaccine development and COVID response. It favors investments in medical devices, life sciences and diagnostics companies, as well as some diversified large-cap pharmaceuticals in Europe.

Health providers are also ramping use of digital platforms to allow patients to receive treatment remotely. Total corporate funding for digital health, including private equity, debt, and public market funding, increased 112% in the first quarter of 2020, compared to the fourth quarter of 2019.2 Longer term, Americans may look to services that enable virtual treatments and data sharing. Similarly, a greater focus on immunotherapy and genomics could accelerate progress toward antibody therapies, ribonucleic vaccines, and genetic testing. Innovators in the fields of RNA vaccines and personalized medicine could potentially be positioned for growth as these treatments become mainstream.

Capturing tech innovators within healthcare

As the digital health market continues to expand ahead of the U.S. election, investors might consider a megatrend approach that seeks to capture innovators at the intersection of healthcare and technology.

Partly fueled by the pandemic, the use of telehealth platforms soared to 46% in 2020 from 11% in 2019 as more patients sought virtual analogs for in-person visits.3 Though the immediate rise of adoption can be explained by the onset of COVID, 57% of providers now view telehealth more positively than they did before the pandemic and 64% of users favor its continued use.4 As a result, the global telehealth market is expected to double from $25.4 billion in 2020 to $55.6 billion by 2025.5 The shift embodies a long-standing megatrend that is propelling  the new virtual normal in healthcare.

U.S. Telehealth Market Growth Over the Last Decade

Bar chart representing telehealth market growth

Source: IBIS World 10/15/20

Given heightened collaboration across healthcare and technology, it is important for investors to keep in mind that exposure to traditional sectors (information technology, healthcare) may not afford optimal thematic exposure to virtualization. In contrast, megatrend indexes may offer this type of targeted, cross-sector exposure.

Unprecedented opportunities in immunotherapy and genomics

Global efforts to create and approve a COVID-19 vaccine have put the spotlight on innovations in immunotherapy and genomics.

Recent advances across genomics and immunology have opened the door to two new kinds of treatments: RNA vaccines and immunotherapies. Though scientists have been working on ribonucleic immunotherapy since the 1990s, and the human genome project was completed in 2003, recent developments in the genomics field, partly accelerated by the pandemic, have moved the application beyond testing and into wider use. The first RNA vaccine in history could be deployed to fight COVID-19 and its application may spawn a new category of treatments.

Genomics have also been essential in identifying predispositions to various diseases, allowing healthcare professionals to diagnose and treat people earlier. Immunotherapies, which involve leveraging the body’s own immune system to fight disease, have already seen 32 FDA-approved treatments for lung, skin, and breast cancers.6 Other immunology treatments such as monoclonal antibodies are being used in the fight against COVID-19, as labs replicate antibodies from those who have already beaten the virus.

Megatrend indexes straddle conventional classifications for a company’s sector, size, and region. This approach can allow for more targeted exposure to megatrends including digital health technologies, immunotherapy and genomics, and virtualization compared with sector indexes focused on healthcare. Zeroing in on the innovators of tomorrow rather than just the large incumbents of today, megatrends investing can help optimize thematic exposure.

2020 YTD Index Performance Comparison

Line chart representing 2020 YTD index performance comparison

Source: Bloomberg 10/15/20. Index performance is for illustrative purposes only.  Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Summing it up

The 2020 election has illuminated the growth potential within digital health, immunotherapy, and genomics that could be accelerated by the pandemic.

For equity investors, the election offers a chance to reevaluate their healthcare exposure to help ensure that their positions reflect the most relevant, long-term themes and that their holdings do not fail to capture the potential cross-sector opportunities available with increased virtualization.

Given the exciting new developments and rate of regulatory, technological, and scientific advancements within the fields of telehealth, mobile healthcare applications, immunotherapy, and genomics, investors might want to consider a megatrends approach, over a sector approach, that can offer broad, thematic exposure to multi-sector themes.

Jeff Spiegel
Head of U.S. iShares Megatrend and International ETFs
Contributor: Kyle R. Chapman
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