FA Magazine July/August 2021 - Page 55

sub-sectors are better than others .
“ We ’ ve been able to find those pockets of innovation early and capitalize on that , while also staying involved in the compounding interest of the bigger companies that have delivered really strong earnings ,” Yoon says .
He notes that the healthcare economy in the U . S . is roughly $ 4 trillion , representing close to one-fifth of the national gross domestic product of about $ 22 trillion .
“ It ’ s going through a renaissance , and I ’ m not talking about biotech ,” Yoon explains . “ I ’ m talking about the core infrastructure of how consumers experience the healthcare system . The concept of value-based care and moving away from fee-for-service care is really starting to take hold at the local level . And companies going public are trying to scale these new business models nationally .”
One of the knocks on the traditional fee-for-service care model is that it encourages quantity rather than quality of care . Yoon describes value-based , or managed care , as a more holistic system that helps keep people out of emergency rooms , addresses chronic conditions in their preventative phases , and aims to keep people from progressing to the most acute stages of their disease — which is the stage that costs the most money .
“ Managed care will deliver better patient care while providing a better consumer experience at lower cost to the payer and the overall system ,” Yoon says . “ We ’ re going to reinvent how care gets delivered . It ’ s a generational change we ’ re very much in the early innings of .”
Managed Care
The two leaders in the managed care space also claim the two top positions in the Fidelity fund . The largest holding is UnitedHealth Group Inc . “ It ’ s one of the biggest players in Medicare Advantage , and it has a strong infrastructure to deliver value-based programs across the country ,” Yoon says .
He calls UnitedHealth ’ s Optum health services platform “ an incredibly unique asset ” that offers analytical tools to help providers and plans operate more effectively . “ I believe this marriage of a health plan , data analytics and new value-based delivery models highlights where our healthcare ecosystem is headed , and UnitedHealth is the clear market leader , in my view ,” Yoon wrote in a market commentary report earlier this year .
The fund ’ s second-biggest holding is Humana Inc ., which Yoon describes as a pure-play Medicare Advantage company with sizable assets in healthcare services and facilities . He praised a recent deal where Humana bought out its private equity partners to gain full control of Kindred at Home , one of the country ’ s largest home-health providers with operations in 40 states .
UnitedHealth and Humana have provided steady growth while maintaining reasonable valuations . “ I think valuations are a very important component in portfolio construction ,” Yoon says . “ I ’ m trying to deliver long-term returns for my funds ’ shareholders , and if you don ’ t take valuation into account you ’ re setting up a situation where value is fully baked in .”
Such emphasis , he says , has helped the fund avoid some blowups caused by overextended valuations . He notes that most of the growthy , innovative companies in his fund sit in the middle-to-bottom part of the portfolio , while the top part contains cheaper stocks with a prov-
Portfolio Statistics
# of positions
121
average Weighted mkt cap
33.9B
p / e ratio
20.45x
std dev fund / Benchmark
22.97 / 18.59
turnover ratio
52 %
expense ratio
0.69 %
en ability to compound their earnings .
“ I ’ ve been able to deliver a lower standard error of returns over time versus my peers because I ’ ve constructed a portfolio with stable growth characteristics at the top of the portfolio , and have had a high batting average in the innovative part of the portfolio ,” Yoon says . “ That adds to returns , but because they ’ re in the middle to bottom part of the portfolio , it takes some of the volatility out of the return streams .”
Active Share
According to Morningstar , the Fidelity Select Health Care Portfolio fund has delivered higher alpha ( the ability to provide higher returns than the market ), as well as less beta and a lower standard deviation ( two measures of volatility ) than its healthcare category peers for the past 10 years . At the same
“ I believe this marriage of a health plan , data analytics and new value-based delivery models highlights where our healthcare ecosystem is headed , and UnitedHealth is the clear market leader , in my view .”
— Eddie Yoon portfolio stats as of 4 / 30 / 21 . standard deviation as of 5 / 31 / 21 . sources : fidelity investments and morningstar time , the fund sported higher beta and standard deviation numbers than the index during this period . ( Note : Morningstar and Fidelity use different benchmark indexes for this fund .)
That speaks to the fund ’ s active share , which measures the difference between a portfolio ’ s holdings and its appropriate benchmark index .
“ If you look at the active share of the fund ,” Yoon says , “ over time it has been in the high 60s / low 70s [ it recently was 71 %], and we try to put every dollar to work very thoughtfully and purposefully . I don ’ t want to own big benchmark weights ; I want our capital to be active all of the time .”
That ’ s why Pfizer Inc . and Merck & Co . Inc ., two of the world ’ s largest pharmaceutical companies , aren ’ t part of Yoon ’ s fund . “ We haven ’ t owned a lot of
photography courtesy of fidelity july / august 2021 | financial advisor magazine | 51