The coronavirus pandemic brought about myriad investment implications, some temporary and plenty more that will be long-lasting.
In the latter category is the acceleration of themes and trends that were already blooming prior to the pandemic. Think cloud computing, healthcare innovation and online retail, just to name a few. A result of that acceleration is rapidly increasing adoption of thematic investment strategies, namely exchange traded funds.
The good news for advisors is that identifying winning themes with longevity beyond the pandemic isn't burdensome. For example, e-commerce took several years worth of market share from brick-and-mortar retail in the span of six months and that trend will not be reversed. Digital payments surged, bolstering the long-term case for fintech. Count digital medicine/telehealth as part of that group.
“Telemedicine and digital health services, like video conferencing with doctors and IoT-connected medical devices, became essential during the pandemic to avoid risky trips to hospitals and medical offices, resulting in accelerated adoption,” writes Global X analyst Pedro Palandrini. “In January 2020, only 0.24% of total medical claims in the U.S. were telemedicine-related. One year later, they totaled 7%.”
Talking Telemedicine With Clients
For advisors, there's actually an easy runway for discussing digital health/telemedicine with clients, including more than the boffo data points noted above.
For starters, healthcare is a sector familiar to many clients. They either own it via broad market funds, sector funds or individual stocks. Due that familiarity and the sector's heft in broad benchmarks, discussing healthcare strategies with clients is often easy and practical for advisors.
Healthcare is also ripe with evolution and growth opportunities, including telemedicine, meaning the advisor/client conversation is increasingly important if not necessary. As it pertains to digital health, advisors should consider pivoting in this direction, if only in modest allocations, because even when COVID-19 is vanquished, this technology isn't going anywhere.
“While the pandemic helped accelerate telemedicine and digital health solutions, there are several reasons why continued growth is likely in a post-pandemic world, including the potential cost savings and conveniences,” notes Palandrini. “Studies suggest virtual health can reduce visit times by about 20%, allowing providers to see more patients.”
As is the with any thematic concept, advisors need to assess the long-ranging viability of the underlying theme. Fortunately, telemedicine checks multiple boxes confirming its utility as a satellite allocation for long-term investors. Those include bringing new efficiencies to sprawling national healthcare systems, financial incentives for healthcare professionals and, most importantly, improving patient outcomes.
Regarding telemedicine, the pandemic actually accentuates the long-term trajectory of the industry. Prior to COVID-19, not even a quarter of US-based healthcare organizations offered virtual visits, but the pandemic forced to them adapt. Now, those groups are realizing benefits and there's no reason to revisit the past when embracing the future improves outcomes for all stakeholders.
“But with patients and providers experiencing the benefits over the past year, we expect that number to continue to increase over the next decade,” adds Palandrini. “While a more value-based reimbursement system could be a major key to unlocking widespread adoption, reduced costs, more widespread reimbursement policies, and several conveniences offered by telemedicine should all help propel adoption as well.”
The Global X Telemedicine & Digital Health ETF (EDOC) is an idea for advisors to consider discussing with clients. That ETF is just 10 months and has $821.46 million in assets under management, confirming support among professional investors for telemedicine strategies.
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