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| FEBRUARY 2007 NEWSLETTER Taking a closer look at the lagging Healthcare sector A good portfolio will always have something in it to complain about. This is evidence of good diversification. Let me use the healthcare sector as an example. It has been underperforming Asia-ex Japan, real estate investment trusts, high yield bonds and a host of other investment alternatives. Does that mean I will recommend staying away from it now? No, just the opposite, we are considering buying more of it. Is this just blindly following a system? To a degree, yes. Unemotional investment rules is an important part of the system. More importantly, healthcare is an increasingly essential part of our economy as (you know this is coming) the Baby Boom ages. Like it our not, we consume the huge majority of our healthcare after age 65. The Baby Boomers are turning 60 at the pace of 11,000 per day! What should we expect in the near term from the healthcare sector? Before I answer that, let me ask you something. Remember back in 1994 when a new political regime was elected? One of their major initiatives was nationalizing healthcare. In the end, not much happened. Now Hilary is back in the limelight and is using the national stage to promote nationalized healthcare again. Whether we have a Hilary as our president in 2008 or not, the specter of nationalized medicine and healthcare will weigh on the values of the stocks of those companies. Just to let you know, I am not blindly following a system. ICON Advisers discussed the healthcare sector just this week. They say that healthcare looks like it may be gaining value in 2007 after its period of lackluster returns. What may be just as important is healthcare’s history of acting differently than other sectors. This confirms its place as a diversifier in your portfolio. Now the point: the depressed stock prices happened in 1994 also. It turned out to be a wonderful buying opportunity. The buying opportunity may last for many months or years. However, the demand for healthcare will outlast the drag on the values of their stocks. I feel that the pharmaceutical, hospital and insurance companies may figure out a way to be profitable in the face of so much demand. I am glad to be hearing the queries about the underperformance of the healthcare sector. It means the system I am monitoring is working! Best from Dominion Wealth,  | |
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