Separating Winners from Losers in a Volatile Health Care Environment
In this short video, Research Analyst Aaron Schaechterle discusses health care volatility and why a smaller number of winners are driving outsized gains across the sector. He also speaks to why those winners have recently reacted less positively than in the past, even on encouraging news.
We have seen significant volatility in the health care sector recently and it’s been really as we analyze the data, over the past seven years, this past quarter was the most volatile and the most negatively skewed volatility that we have seen of any quarter over that period. And as we look at that volatility, we want to examine why. Part of our reason is we think that the success within health care over the past year of the market, within different subsectors has been tremendously successful in health care. Med tech is up almost 40%. Small- and mid-cap health care is up over 30%. I guess the market is up mid-teens plus. So I think the generalist portfolio manager is looking at their portfolio broadly thinking about mean reversion and thinking about where they can trim potentially some outsize gains and also potentially reacting to negativity itself in the sense that portfolio managers tend to be letting winners run and trimming losers quickly.
What we have seen is a significant bifurcation in winners and losers, a smaller number of winners are driving outsize gains across health care, broadly speaking. What is interesting over the most recent period is those winners, even on good news in the past quarter have not reacted as positively as they have in the past. Normally the good news and bad news is met with less volatility and more balance, and this past quarter it has been more volatile and skewed negative. We think that part of the negative volatility has been due to business model sustainability around some of the losers, and a heightened focus on that due to the Amazon effect re-platforming in technology, and just a focus on sustainability across the market broadly.