Investing healthily for global income – with EdenTree
This includes the healthcare industry, which makes up a third of our Amity Global Equity Fund for Charities. The fund aims to provide above average income and capital growth over the longer term by investing in higher yielding global equities that make a positive contribution to society and environment through sustainable and socially responsible practices.
The pandemic has created a perfect storm for income investors, who are now faced with a dividend landscape decimated by widespread deferrals, reductions, suspensions and cancellations of payments. One worst-case scenario for 2020 global dividends forecasts a 35% decline from a high of $1.4 trillion in 2019.
In the UK, almost half of the FTSE 100 companies have announced measures to deal with the pandemic, with many facing ever increasing regulatory and political pressure to withdraw payments during the crisis. The watershed moment was the decision by Shell, the largest dividend payer in the UK, to cut its dividend for the first time since World War Two. For investors, especially charities and trusts, who have adopted an ESG (environmental, social and governance) framework, the challenge is very pressing, with investment income already committed to projects and programmes.
However, there are still pockets of the market that are offering stable and often growing income for ESG investors, allowing them to deliver on their financial commitments while maintaining their principles. One such pocket is the healthcare industry. This is naturally aligned to the values of many ESG investors, playing a vital role in expanding access to medicine and delivering affordable healthcare. The healthcare industry is often viewed as homogenous by many investors, but the breadth and depth offered at a sector level is second to none.
Sector: breadth and depth
The diverse healthcare industry includes well-established global companies operating in the research and development (R&D) of drugs, biotechnology, diagnostics, drug distribution, medical technology and animal health. All of these provide rich opportunities for income investors. While the large cap R&D pharmaceutical giants are widely held in income portfolios, there are many candidates in the other sectors offering income investors both yield and growth.
Dividend: yield and growth
Income investors, when constructing their portfolios, often define their universe as three distinct buckets – defensive, quality and growth. Healthcare is uniquely positioned to deliver on all three, with large cap pharma’s defensive business model typically delivering income well in excess of 4%. There hasn’t been a dividend cut in this part of the market for well over 20 years, excluding mergers and acquisitions. All three buckets are well represented at a sector and geographical level, allowing for investors across the global healthcare landscape.
Global healthcare: quality and sustainable income
The challenging landscape for income investors can be navigated by adopting a wider net to ensure a more diversified income stream. The length and impact of the pandemic will be difficult to predict, but those investors who are willing to search out companies operating in strong end markets with high barriers to entry, conservative balance sheets, strong cash flow generation, high recurring revenues and long-tenured and aligned management will be rewarded in the long-term. Although there is much to be concerned about on the economic and political front, there are pockets of the market like healthcare that offer quality and sustainable income for those ESG investors who can adopt a global lens when constructing their portfolios.
Affordable healthcare and access to medicine
Health and wellbeing is one of the positive pillars of EdenTree’s Amity Fund Range. We look to invest in healthcare companies, across the whole value chain, that are assisting in delivering affordable healthcare and improving access to medicine, especially to the developing world.
EdenTree are signatories to the Access to Medicine Index, a biennial index, built collaboratively with ESG data provider Sustainalytics, which ranks the largest global pharmaceutical companies across technical and strategic pillars. For more information on the pillars considered, and EdenTree’s investment approach, you can read Ketan’s Insight on healthcare.
Contact
Our dedicated charity team is always on hand to answer any queries you might have about our funds or the wider investment market, especially at this turbulent time.
If you would like to discuss any of the information in this article in more detail, or request information about EdenTree’s Amity Global Equity Fund for Charities, please contact us at 0800 032 3778 or [email protected].
About EdenTree
EdenTree is a leading investment house with assets under management totalling £2.8bn (as of 30 April 2020). Founded in 1887, EdenTree is part of the Ecclesiastical Insurance Group, uniquely returning all of its distributable profits to its parent, Allchurches Trust, one of the UK’s largest grant-making charities. A pioneer of responsible and sustainable investing, EdenTree has a long-established track record of successfully managing both ethically screened and non-screened portfolios for individuals, institutions and charities.
EdenTree is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association. Firm Reference Number 527473.
The pandemic has created a perfect storm for income investors, who are now faced with a dividend landscape decimated by widespread deferrals, reductions, suspensions and cancellations of payments. One worst-case scenario for 2020 global dividends forecasts a 35% decline from a high of $1.4 trillion in 2019. In the UK, almost half of the FTSE 100 companies have announced measures to deal with the pandemic, with many facing ever increasing regulatory and political pressure to withdraw payments during the crisis. The watershed moment was the decision by Shell, the largest dividend payer in the UK, to cut its dividend for the first time since World War Two. For investors, especially charities and trusts, who have adopted an ESG (environmental, social and governance) framework, the challenge is very pressing, with investment income already committed to projects and programmes.
However, there are still pockets of the market that are offering stable and often growing income for ESG investors, allowing them to deliver on their financial commitments while maintaining their principles. One such pocket is the healthcare industry. This is naturally aligned to the values of many ESG investors, playing a vital role in expanding access to medicine and delivering affordable healthcare. The healthcare industry is often viewed as homogenous by many investors, but the breadth and depth offered at a sector level is second to none.
Sector: breadth and depth
The diverse healthcare industry includes well-established global companies operating in the research and development (R&D) of drugs, biotechnology, diagnostics, drug distribution, medical technology and animal health. All of these provide rich opportunities for income investors. While the large cap R&D pharmaceutical giants are widely held in income portfolios, there are many candidates in the other sectors offering income investors both yield and growth.
Dividend: yield and growth
Income investors, when constructing their portfolios, often define their universe as three distinct buckets – defensive, quality and growth. Healthcare is uniquely positioned to deliver on all three, with large cap pharma’s defensive business model typically delivering income well in excess of 4%. There hasn’t been a dividend cut in this part of the market for well over 20 years, excluding mergers and acquisitions. All three buckets are well represented at a sector and geographical level, allowing for investors across the global healthcare landscape.
Global healthcare: quality and sustainable income
The challenging landscape for income investors can be navigated by adopting a wider net to ensure a more diversified income stream. The length and impact of the pandemic will be difficult to predict, but those investors who are willing to search out companies operating in strong end markets with high barriers to entry, conservative balance sheets, strong cash flow generation, high recurring revenues and long-tenured and aligned management will be rewarded in the long-term. Although there is much to be concerned about on the economic and political front, there are pockets of the market like healthcare that offer quality and sustainable income for those ESG investors who can adopt a global lens when constructing their portfolios.
Affordable healthcare and access to medicine
Health and wellbeing is one of the positive pillars of EdenTree’s Amity Fund Range. We look to invest in healthcare companies, across the whole value chain, that are assisting in delivering affordable healthcare and improving access to medicine, especially to the developing world.
EdenTree are signatories to the Access to Medicine Index, a biennial index, built collaboratively with ESG data provider Sustainalytics, which ranks the largest global pharmaceutical companies across technical and strategic pillars. For more information on the pillars considered, and EdenTree’s investment approach, you can read Ketan’s Insight on healthcare.
Contact
Our dedicated charity team is always on hand to answer any queries you might have about our funds or the wider investment market, especially at this turbulent time.
If you would like to discuss any of the information in this article in more detail, or request information about EdenTree’s Amity Global Equity Fund for Charities, please contact us at 0800 032 3778 or [email protected].
About EdenTree
EdenTree is a leading investment house with assets under management totalling £2.8bn (as of 30 April 2020). Founded in 1887, EdenTree is part of the Ecclesiastical Insurance Group, uniquely returning all of its distributable profits to its parent, Allchurches Trust, one of the UK’s largest grant-making charities. A pioneer of responsible and sustainable investing, EdenTree has a long-established track record of successfully managing both ethically screened and non-screened portfolios for individuals, institutions and charities.
EdenTree is authorised and regulated by the Financial Conduct Authority and is a member of the Investment Association. Firm Reference Number 527473.
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