“Healthcare products and services are something people don’t have much choice in consuming – whether it’s medication, hospital procedures, or regular doctor visits”
Rob Moffat,
Middlefield
“If you’re imagining a part of healthcare that’s not impacted by AI in the future, then you just lack imagination”
Dr. Richard Evans, SSR Health
In Partnership with
Investing in the future of healthcare
Middlefield’s strategy for unlocking the healthcare industry’s growth potential
Read on
Rob Moffat
Middlefield
Dean Orrico
Middlefield
Dr. Richard Evans
SSR Health
Industry experts
THE HEALTHCARE sector has become a hub for cutting-edge advancements that are not only transforming patient outcomes but also creating enormous growth opportunities for investors. With AI stepping into the spotlight and the healthcare industry teeming with breakthroughs, the question isn’t if these innovations will disrupt the industry but how soon – and how much.
In a recent roundtable discussion, Dean Orrico, president of Middlefield, was joined by Dr. Richard Evans, founder of SSR Health, and Rob Moffat, portfolio manager at Middlefield, to dissect the healthcare sector’s trajectory. The conversation covered everything from AI’s evolving role in healthcare to the meteoric rise of GLP-1 drugs.
Healthcare’s reputation as a recession-resistant sector is well-earned. “Healthcare products and services are something people don’t have much choice in consuming – whether it’s medication, hospital procedures, or regular doctor visits,” Moffat explains. This inelastic demand, where consumption is largely unaffected by economic conditions, is a key reason healthcare tends to outperform during downturns. Equally important is the fact that healthcare costs are typically paid by governments or insurance companies, not the end patient. “Because healthcare is covered by third parties, it’s not included in consumers’ discretionary spending decisions,” Moffat adds.
This resilience has been demonstrated time and again. During the past three major recessions – in 1999, 2001, and 2008 – healthcare was one of only two sectors (the other being consumer staples) that managed to grow earnings, while the rest of the S&P 500 saw declines. Yet, despite its relative stability, many Canadian investors remain underexposed to healthcare, largely due to the limited representation of the sector in the TSX Composite Index. While healthcare represents roughly 12 percent of the S&P 500, it makes up just 0.3 percent of the TSX Composite, leaving passive investors in Canada with minimal exposure to this essential industry.
Middlefield’s Healthcare Dividend ETF (MHCD: TSX) fully leverages breakthrough healthcare innovations, such as GLP-1s, in contrast to covered-call strategies that limit potential gains through options writing. This approach allows investors to benefit from rapid stock price increases, positioning MHCD to take full advantage of a market that generously rewards companies making transformative healthcare advancements.
Moffat, who manages Middlefield’s healthcare-focused ETF and the Middlefield Healthcare Dividend Fund: (FE: MID325 / F Series: MID326), emphasizes the importance of asset allocation in navigating the complexities of the healthcare sector. While many investors concentrate on picking individual stocks, Moffat points out that identifying the right subsectors is just as crucial, especially in a
Middlefield’s investment strategy emphasizes diversification across subsectors. While technological innovations and drug developments drive growth, the foundation of healthcare’s investment appeal remains its stability, particularly during economic downturns.
Despite its resilience, healthcare can be a complex sector and requires a comprehensive approach. Dr. Evans stresses the importance of a top-down strategy, which begins with identifying the right subsectors to invest in before delving into individual stock selections. “Subsector balance is at least half of the performance of a typical healthcare portfolio,” he explains, underlining that healthcare’s diversity – from drug
While asset allocation is key to navigating the healthcare sector’s complexity, innovation in biology has presented significant prospects for growth. The rise of GLP-1 drugs offers an unprecedented opportunity to address the obesity epidemic.
With more than a billion people worldwide affected by obesity and 500 million managing diabetes, the potential market is vast. Yet, even with these staggering figures, market penetration remains in its early stages.
“We’re probably in the low-to-mid-single digits of people who are eligible for these drugs that are actually taking them,” Moffat points out, highlighting substantial room for growth. He says the major constraint, for now, is supply.
As industry leaders like Eli Lilly and Novo Nordisk invest in manufacturing capacity, demand is expected to surge. “You’re going to see revenue grow in lockstep with increased production capacity,” Moffat says. He also predicts that this is only the beginning for GLP-1 treatments. The sheer scale of the addressable patient population and the growing awareness of these treatments suggest that GLP-1 drugs could become one of the most impactful drug classes in history.
The key question is, “We’re talking about billions of people – is that really the addressable market, or are we looking at only a fraction of that over time?”
Dr. Evans believes that is the addressable market. “We took a highly conservative approach in our forecast, factoring in compliance issues, lack of coverage, side effects, and other potential risks,” he says. “Even then, we projected $84 billion in annual revenue for the US market alone – without even considering global figures.”
He elaborates that the sheer size of the market is driven by obesity as a root cause of numerous chronic conditions – cardiovascular diseases, kidney issues, and orthopaedic problems. “Addressing that underlying factor solves a lot of problems,” Dr. Evans explains. He shares an example of a patient with type 2 diabetes who had been on multiple medications for two decades but, after starting GLP-1 treatments, was off all other diabetes drugs within weeks. This kind of outcome is a key reason why insurers are backing these treatments – they not only improve patient health but also offer long-term cost savings.
Healthcare’s resilience becomes particularly relevant in times of uncertainty, including in election years. However, healthcare stocks have historically been volatile during US election cycles due to regulatory uncertainty. Dr. Evans believes this cycle may be different. “Trump isn’t saying much about healthcare, and Harris is framing it more as part of affordability,” he observes, noting that healthcare may not be as politically charged this time around.
For investors, this reduced focus on healthcare from both sides of the political spectrum could create opportunities. Whether the election outcome favours tax reforms or extended healthcare subsidies, the sector’s long-term fundamentals remain strong. Investors who recognize the potential of healthcare to weather political and economic volatility may find it a compelling option.
Middlefield’s healthcare strategy is built on companies with strong research and development capabilities, such as Eli Lilly, whose unique cash flow generation from GLP-1 drugs enables them to invest in their pipeline and develop next-generation therapeutics.
While current valuations for companies like Eli Lilly may appear high, Moffat underscores the importance of long-term thinking. “If you look out five years, you’ll see an earnings multiple somewhere in the teens,” he says, highlighting how sustained innovation is expected to drive growth.
Dr. Evans points to the increased application of AI in healthcare. He notes that AI’s immediate applications – such as pattern recognition in radiographs and the use of augmented reality during surgeries – are already making an impact. One promising area is the use of AI to monitor real-time patient data in intensive care units. AI can analyze real-time streams of data from patients, identifying early warning signs of potential issues like pre-myocardial infarctions, enabling timely interventions.
According to Dr. Evans, this is something companies should embrace. “If you’re imagining a part of healthcare that’s not impacted by AI in the future, then you just lack imagination,” he says.
So while AI’s application in drug discovery is still nascent, its potential is undeniable. Early results show the technology is incredibly powerful, but it hasn’t yet fully matured.
Key reasons to invest in Middlefield’s Healthcare Dividend Fund
Founded in 1979, Middlefield is a specialist and independent equity-income manager headquartered in Toronto, Canada. Middlefield’s actively managed, award-winning funds are designed to be “investments that work for you” by distributing consistent and high levels of income through various market cycles. Middlefield’s funds span a number of market sectors, including real estate, healthcare, innovation, sustainability, infrastructure, and energy. Investors can access these strategies in a variety of product types, including ETFs, mutual funds, closed-end funds, split-share funds, and flow-through LPs.
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Rob Moffat has been covering the healthcare sector with Middlefield for eight years and is the lead portfolio manager for the firm’s healthcare strategies. Moffat received a business degree with a specialization in finance from Western University and holds the chartered financial analyst designation.
Middlefield
Rob Moffat
Dean Orrico, president and CEO of Middlefield, has over 25 years of experience in investment management. He is committed to excellence and integrity in funds management and is responsible for overseeing the business management and expansion of Middlefield’s asset management business in Canada and abroad. Under his leadership, Middlefield expanded its global client base and launched its first international fund in 2006. Orrico holds a Bachelor of Commerce from the University of Toronto and an MBA from York University. A frequent speaker, he shares insights on capital markets in Canada and the UK, including appearances on BNN Bloomberg.
Middlefield
Dean Orrico
Dr. Richard Evans served as a senior analyst at Sanford C. Bernstein & Co. from 1998 to 2006, specializing in US pharmaceuticals. During his tenure, he earned top rankings for stock selection and was named to Institutional Investor’s All-America Research Team. His work has been featured in major media publications such as the Wall Street Journal and Fortune. Prior to his time at Bernstein, Dr. Evans held senior roles at Roche, managing commercial operations with large buyers. He holds a doctorate in Veterinary Medicine from North Carolina State University and an MBA from Yale University.
SSR Health
Dr. Richard Evans
In Partnership with
Fighting for
the customer
The customer owned a bank saw a huge boost after the Hayne Royal Commission. One year on and their market share is growing as customer continue to see their value.
Read on
Stewart Saunders
Heritage Bank
Darren McLeod
Beyond Bank
Fernando Lemos
Bank Australia
Industry experts
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Bank Australia
Fernando Lemos
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Beyond Bank
Darren McLeod
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Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Heritage Bank
Stewart Saunders
In Partnership with
Fighting for
the customer
The customer owned a bank saw a huge boost after the Hayne Royal Commission. One year on and their market share is growing as customer continue to see their value.
Read on
Stewart Saunders
Heritage Bank
Darren McLeod
Beyond Bank
Fernando Lemos
Bank Australia
Industry experts
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Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Beyond Bank
Darren McLeod
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Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Heritage Bank
Stewart Saunders
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Velit egestas vel ornare pellentesque ridiculus. Mauris tempor augue quis mattis suspendisse feugiat commodo posuere. Faucibus massa adipiscing nullam elit, ac vel accumsan. Phasellus eget ac dignissim fermentum ac placerat elit, metus. Nulla porttitor ante egestas molestie quis quam. Pharetra magna sit mauris tellus gravida rutrum libero sit. Justo orci cras euismod proin massa lorem ut. In non tellus phasellus faucibus ullamcorper nullam odio dui et.
Bank Australia
Fernando Lemos
Full upside potential in an attractive sector
Published October 28, 2024
Diversified global exposure
Access a portfolio of leading healthcare companies providing a balance of defensive stability and innovative growth
Tax-efficient monthly income
Enjoy consistent, tax-efficient distributions, ideal for income-focused investors
R&D-driven growth
Benefit from companies at the forefront of healthcare innovation, driven by significant investments in research and development
TSX TICKER MHCD
Middlefield’s healthcare-focused strategies
YIELD
5.0%
AUM
+$160M
Canada's largest actively managed healthcare sector ETF
HEALTHCARE DIVIDENDETF
FE: MD325 | F Series: MD326
FUND CODES
YIELD
AUM
HEALTHCARE DIVIDENDFUND
A: 2.8% | F: 2.5%
+$100M
Healthcare
The role of innovation
highly regulated field like healthcare. “Healthcare can be challenging from a regulatory and drug-pricing perspective,” he says, crediting SSR Health’s guidance with helping Middlefield achieve the optimal asset allocation.
Middlefield itself has evolved considerably since its founding in 1979. Initially focused on real estate development and financing, it has since become a diverse asset management firm with portfolios spanning real estate, energy, infrastructure, innovation, and healthcare. Within this wide scope, healthcare has emerged as a cornerstone of Middlefield’s investment approach, driven by the sector’s resilience and growth potential. As a result, MHCD is the largest actively managed healthcare ETF currently trading on the TSX. The fund’s success is primarily attributed to the team’s ability to respond to market trends and dynamically invest in high-growth areas.
The resilience of healthcare
Strategic allocation
manufacturers to biotech firms and medical device companies – makes it essential to allocate investments wisely across subsectors.
In recent years, SSR Health has also become a leader in drug-pricing data, offering insights critical to government bodies, manufacturers, and academics. “Drug pricing drives our business,” Dr. Evans says, as it continues to play an essential role in shaping healthcare investment strategies.
The unfolding GLP-1 opportunity
Strong fundamentals amid election-year uncertainty
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Source: Middlefield, as at September 30, 2024
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Copyright © 1996-2024 KM Business Information Canada Ltd.
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Your Practice
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Best in Wealth
Subscribe
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About us
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RSS
People
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Contact us
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Copyright © 1996-2024 KM Business Information Canada Ltd.