While we considered adding a Foreign Healthcare sector to our foreign allocations and may still do so in the future, there are several barriers to making that change today. To integrate some of these findings while still maintaining our Freedom Investing strategy, we elected to add a sector tilt to our dynamic tilt formulas. This meant that we effectively tilted towards Denmark, New Zealand, and Switzerland and away from Canada, Hong Kong, and Singapore.
After implementing this tilt, we decided to take the time to research the top holdings of each of our foreign funds as well as the top holdings of the global healthcare funds which are on the market with the goal of seeing if we could identify a set of individual companies which could more precisely target Freedom Investing foreign healthcare.
From that research, we identified 26 companies which we can add to our portfolios to create a healthcare overweight such that when we add these companies to portfolios, we reduce the corresponding country-specific fund. As these companies are already present in the country-specific fund, by adding them individually to the portfolio we are effectively creating a country-specific fund with a healthcare overweight.
Adding individual stocks like this requires having sufficient assets such that you can afford to diversify across many companies. With individual share prices ranging from $50 to $300 per share, diversifying the small healthcare overweight allocation across the 26 companies requires a portfolio of perhaps $500,000 or more.
Also, investors used to ETF investing may dislike the volatility that can be seen in individual stock investing. Watching each individual company go up or down can be a bit like watching a sausage get made. Investors not used to seeing it may dislike the experience.
We have started purchasing these individual stocks for clients who have sufficient assets who we know would appreciate individual stocks. If you are a client of Marotta and interested in taking advantage of this strategy, feel free to reach out to your advisor to ask if this strategy is a good fit for your portfolio.
While there does not exist an affordable foreign healthcare fund, iShares Global Healthcare ETF (IXJ) has an expense ratio of 0.46% and is 68.13% United States and 31.87% foreign. iShares MSCI ACWI ex U.S. ETF (ACWX) represents all foreign stocks where 9.24% of the fund is healthcare.
Our current Denmark fund is iShares MSCI Denmark ETF (EDEN) with an expense ratio of 0.53%. When broken down by sector, 39.66% of fund assets are invested in 12 healthcare companies. From those 12, the top six healthcare companies are:
1. Novo Nordisk (NVO) is a global healthcare company, founded in 1923, and headquartered just outside Copenhagen, Denmark. In addition to providing research and treatment for chronic diseases such as obesity and rare blood or endocrine diseases, they report that they produce 50% of the world’s insulin supply. Novo Nordisk represents 21.74% of EDEN, 3.65% of IXJ, and 0.47% of ACWX.
2. Genmab (GMAB), founded in 1999 in Copenhagen, Denmark, specializes in the creation and development of differentiated antibody therapeutics for the treatment of cancer. Genmab represents 4.87% of EDEN, 0.43% of IXJ, and 0.11% of ACWX.
3. Coloplast (CLPBY) is a Danish company that develops, manufactures and markets medical devices and services related to ostomy, urology, continence, and wound care. Coloplast represents 4.00% of EDEN, 0.27% of IXJ, and 0.07% of ACWX.
4. GN (GNNDY) is a Denmark company specializing in hearing aids, headsets, headphones, and earbuds marketed by the brands ReSound, Beltone, Interton, Jabra, BlueParrott and FalCom in 100 countries. GN represents 2.43% of EDEN, 0.17% of IXJ, and 0.04% of ACWX.
5. Ambu (AMBBY) is a Danish company founded in 1937. They have created medical equipment to help with visualization (such as a flexible endoscope), patient monitoring & diagnostics (such as single-use electrodes), and anesthesia (with a self-inflating resuscitator). Ambu represents 1.76% of EDEN and 0.02% of ACWX. It is not in IXJ.
6. Demant (WILYY), founded in 1904 in Denmark, specializes in making hearing devices, hearing implants, and diagnostic equipment for hearing care. Demant represents 1.21% of EDEN and 0.02% of ACWX. It is not in IXJ.
Our current Switzerland fund is Franklin FTSE Switzerland ETF (FLSW) with an expense ratio of 0.09%. When broken down by sector, 36.17% of fund assets are invested in 7 healthcare companies. In order of cap-weight, those companies are:
1. Roche (RHHBY) was founded in 1896 in Basel, Switzerland. They report being “the world’s largest biotech company” and work on creating both diagnostic equipment and the pharmaceuticals to treat the diagnosis. Roche represents 15.53% of FLSW, 3.87% of IXJ, and 0.94% of ACWX.
2. Novartis (NVS) was created in 1996 through a merger of Ciba-Geigy and Sandoz. They specialize in patented medicines. Novartis represents 12.48% of FLSW, 1.84% of IXJ, and 0.80% of ACWX.
3. Lonza (LZAGY) is a Swiss-based medical manufacturer for the pharmaceutical, biotech and specialty ingredients markets. Lonza represents 3.43% of FLSW, 0.76% of IXJ, and 0.19% of ACWX.
4. Alcon (ALC) is the largest eye care device company in the world. While originally founded in 1945 in Texas, Alcon is now headquartered in Geneva, Switzerland. Alcon represents 2.25% of FLSW, 0.55% of IXJ, and 0.14% of ACWX.
5. Sonova (SONVY) was founded in 1947, is headquartered in Switzerland, and is a leading provider of hearing care solutions. Sonova represents 0.90% of FLSW, 0.21% of IXJ, and 0.05% of ACWX.
6. Straumann (SAUHY) is a Swiss company specializing in innovations in implant, regenerative and esthetic dentistry. Straumann represents 0.78% of FLSW, 0.20% of IXJ, and 0.05% of ACWX.
7. Vifor Pharma (GNHAY), headquartered in Switzerland, is a global pharmaceuticals company. Their subsidiaries specialize in treatment of iron deficiency, products and services for people with chronic kidney failure, and the discovery, development and commercialization of polymeric medicines for patients with often overlooked and undertreated conditions that can be addressed in the gastrointestinal tract. Vifor Pharma represents 0.53% of FLSW, 0.10% of IXJ, and 0.03% of ACWX.
Our current New Zealand fund is iShares MSCI New Zealand ETF (ENZL) with an expense ratio of 0.51%. When broken down by sector, 26.71% of fund assets are invested in 4 healthcare companies. From those 4, the top two healthcare companies are:
1. Fisher & Paykel Healthcare (FSPKF), founded in 1969 in New Zealand, specializes in acute and chronic respiratory care, surgery, and the treatment of obstructive sleep apnea. Fisher & Paykel Healthcare represents 18.11% of ENZL and 0.05% of ACWX.
2. Ryman Healthcare (RYHTY) was founded in 1983 and specializes in retirement villages in New Zealand and Australia. They are domiciled in New Zealand. Ryman Healthcare represents 4.28% of ENZL and 0.02% of ACWX.
New Zealand is not represented in IXJ.
Our United Kingdom fund was SPDR® Solactive United Kingdom ETF (ZGBR) with an expense ratio of 0.20%. When broken down by sector, 10.84% of fund assets are invested in 5 healthcare companies. From those 5, the top three healthcare companies are:
1. Astrazeneca (AZN) was founded in 1999 through the merger of the Swedish Astra AB and the British Zeneca Group. Now, it is one of the world’s largest pharmaceutical companies. It recently made the news for its COVID vaccine. Astrazeneca represents 5.55% of ZGBR, 2.09% of IXJ, and 0.52% of ACWX.
2. Glaxosmithkline (GSK) was originally a 1715 apothecary shop in London that has steadily evolved into a conglomerate of three global businesses that research, develop, and manufacture innovative pharmaceutical medicines, vaccines and consumer healthcare products. Glazosmithkline represents 3.99% of ZGBR, 1.44% of IXJ, and 0.36% of ACWX.
3. Smith & Nephew (SNN) started in 1856 as a small pharmacy in Hull, England. Now, they specialize in advance wound management, sports medicine treatments, and orthopedic treatment from trauma with a presence in more than 100 countries. Smith & Nephew represents 0.84% of ZGBR, 0.31% of IXJ, and 0.08% of ACWX.
While SPDR® Solactive United Kingdom ETF (ZGBR) is closing in March 2021, we are replacing it on our Buy List with Franklin FTSE United Kingdom ETF (FLGB).
Our current Australia fund is Franklin FTSE Australia ETF (FLAU) with an expense ratio of 0.09%. When broken down by sector, 10.03% of fund assets are invested in 5 healthcare companies. From those 5, the top four healthcare companies are:
1. CSL Limited (CMXHF) was founded over a century ago in Australia. They are a protein-based biotechnology business for rare and serious diseases as well as a provider of influenza vaccines. CSL Limited represents 7.34% of FLAU, 1.46% of IXJ, and 0.36% of ACWX.
2. Sonic Healthcare (SKHHY) is headquartered in Australia and specializes in laboratory medicine/pathology, radiology/diagnostic imaging and primary care medical services. Sonic Healthcare represents 0.97% of FLAU, 0.19% of IXJ, and 0.05% of ACWX.
3. Cochlear (CHEOY) is the global leader in implantable hearing solutions. They are headquartered in Australia. Cochlear represents 0.75% of FLAU, 0.15% of IXJ, and 0.04% of ACWX.
4. Ramsay Health Care (RMYHY) delivers a range of acute and primary healthcare services from hospitals and primary care clinics located in Australia, France, the United Kingdom, Sweden, Norway, Denmark, Germany, Italy, Malaysia, Indonesia, and Hong Kong. Ramsay Health Care was established in 1964 in Australia and represents 0.66% of FLAU, 0.14% of IXJ, and 0.03% of ACWX.
Our current Ireland fund is iShares MSCI Ireland ETF (EIRL) with an expense ratio of 0.51%. When broken down by sector, 6.44% of fund assets are invested in two healthcare companies. From those, the top healthcare company is:
1. ICON (ICLR) was founded in Ireland in 1990. They provide consulting to other healthcare organizations, helping them navigate regulation, reimbursement, testing, and other development needs. In recent news, ICON was supporting Pfizer and BioNTech on the investigational COVID-19 vaccine trial. ICON represents 4.8% of EIRL. It is not present in either IXJ or ACWX, likely because, oddly enough, no Ireland funds are present in either.
Our current Netherlands fund is iShares MSCI Netherlands ETF (EWN) with an expense ratio of 0.51%. When broken down by sector, 4.98% of fund assets are invested in 2 healthcare companies. From those, the top healthcare company is:
1. Koninklijke Philips (PHG) was originally founded in 1891 in the Netherlands to sell light bulbs. It evolved into one of the largest electronic companies in the world, and later shifted its focus to healthcare. Now, it uses electronics, software, and data science to improve people’s health and well-being. I was personally interested to learn that they make my Sonicare electric toothbrush. Koninklijke Philips represents 4.69% of EWN, 0.76% of IXJ, and 0.19% of ACWX.
Our Canada fund was SPDR® Solactive Canada ETF (ZCAN) with an expense ratio of 0.20%. ZCAN has one healthcare company and that is:
1. Canopy Growth (CGC) is a Canadian company and the first cannabis company to be publicly traded in 2014. Canopy Growth represents 0.45% of ZCAN, 0.12% of IXJ, and 0.03% of ACWX.
While not included in ZCAN, we also selected Bausch Health to add to our individual selections. It is included in the MSCI Canada Index and also included in Global Healthcare (IXJ).
2. Bausch Health (BHC) manufactures and markets a broad range of branded and generic pharmaceuticals, over-the-counter products and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetic devices). They are headquartered in Canada. While Bausch Health is not represented in ZCAN, it is 0.13% of IXJ and 0.03% of ACWX.
While SPDR® Solactive Canada ETF (ZCAN) is closing March 2021, we are replacing it on our Buy List with Franklin FTSE Canada ETF (FLCA).
These stock selections represent between 59.12% (when measured by IXJ) and 50.11% (when measured by ACWX) of all foreign healthcare stocks. This also represents 61.90% of the companies and 90.06% of the cap-weight of healthcare companies from our Freedom Investing funds.
In this way, we believe these 26 companies will be an effective overweight to add foreign healthcare to our portfolios.
Photo by Maksym Potapenko on Unsplash