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To reduce risk exposure, health professionals are investing in shares outside the health sector. JBWere’s Chief Investment Officer, Giselle Roux, details this trend.
Given a lot of health professionals have relatively high disposable and secure income streams, many are expanding their share portfolios beyond health care, according to JBWere’s Chief Investment Officer, Giselle Roux.
Roux outlines her top shares advice for healthcare professionals:
While the health sector has its own nuances, most general investment principles should still apply. We encourage professionals to distinguish their assets between operational investments (such as consulting rooms), lifestyle investments (typically property) and portfolio investments. Our experience in advising health professionals is that they usually hold a very high level of property. Property can be a good investment but it often has a low-income return and is illiquid. We therefore design their investment portfolio to be more biased towards income-producing liquid assets.
The ability to micro manage a portfolio can be challenging for health professionals as they can’t always be available for timely decisions or regular reviews.
Within the Australian equity market are exceptional companies in the healthcare sector, such as CSL and Cochlear. Health stocks tend to provide defensive, stable growth selections within a portfolio.
But we caution against investors judging the potential for a company to perform on the equity market from their personal knowledge of an industry. Often, they’re aware of only a small part of the group’s operations and most importantly, may have little idea of the commercial outcomes or the valuation the market will attribute to any initiatives. Overpaying is one sure way to limit the performance of investments.
Healthcare stocks represent only 3.5 percent of the ASX 200 Index and, within that, CSL is 42 percent of the weighting. Therefore in focusing on these companies, investors would be neglecting all the other opportunities that present themselves. We can take this even further. The Australian market is only 3 percent of global equity markets, and the health sector globally is both broad and deep in terms of investment options outside of the Australian market. We strongly encourage investors not to have excess home bias in their portfolios.
Global economies are facing particularly challenging conditions and the level of certainty is low. We therefore encourage investors to anchor their portfolio in fixed interest assets, and consider all the options in this sector, in particular, corporate credit. The intent is to ensure that a robust proportion of a portfolio has low volatility with regular, above cash, income returns.
Equities are, in our view, fair to good value at the moment. But it’s time to be more tactical and active – depending, of course, on each investor’s risk profile. The Australian equity market is highly concentrated, with the top 20 stocks representing about 67 percent of the ASX 200 Index. The best growth options are likely to sit outside the top 20 but, in turn, represent more risk. Global markets are not as concentrated and provide access to sectors poorly represented withinAustralia.
Alongside the broader economic risks, interest rate changes, inflation and currency movements require judgements. Australian investors should be particularly mindful of our domestic dependence on bulk commodities, namely iron ore and coal. If the current prices for these commodities come back sharply due to either lower demand or increased supply, the outlook for employment and domestic income growth could be problematic. Make every effort to consider some of the ‘what if’ issues and incorporate them into portfolios.
Read more about investing in shares.
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