By the Select Large Cap Growth Team
Two themes where we see opportunity are healthcare and information technology.
Demographics and innovation support the continued growth of healthcare spending.
Key areas for investing in technology include the Internet, cloud computing and mobility.
In a challenging macro environment, where top-line sales gains will be harder to come by, we focus on high-quality high-growth companies with more independent outcomes. Among the thematic areas where we see opportunity are healthcare and information technology.
Healthcare spending beneficiaries
Healthcare spending remains robust, with medical costs rising in the high-single-digits in the U.S. In some emerging economies the rate of growth is much faster, as adoption of Western therapies, procedures and devices continues. As such, healthcare remains a solid growth category.
The key driver of healthcare utilization remains the demographic wave, as consumption patterns increase exponentially with the aging process. Moreover, consumers in emerging economies that have increased wealth and an appetite for wellness and health are spending increasing sums on relevant treatments.
Another key determinant of future growth for many healthcare companies is innovation via efficient research and development spending. Within R&D pipelines, companies continue to deploy capital into targeted therapies and minimally invasive devices and procedures.
Lastly, another area of growth within healthcare includes products and procedures designed to optimize delivery and reduce waste within the healthcare system. These cost-bending initiatives remain a significant focus of politicians and business leaders alike, as deficits and large social spending programs like Medicare remain in the cross hairs.
Cutting edge information technology
Set against a backdrop of moderate global GDP growth, our view of the technology sector begins with an expectation of low-single-digit growth in information technology (IT) spending in 2013. In this limited growth environment, we continue to focus on companies that either help customers do more with less or help customers generate revenues. We believe those companies will gain market share. Key areas of investment include the Internet, cloud computing and mobility.
More than a decade after the dot-com bubble burst, Internet business models have matured and present many long-term investment opportunities, including:
- e-commerce, which despite years of wallet share gains is still less than 10% of retail sales (Bureau of Economic Analysis)
- The migration of global advertising dollars from traditional media sources in secular decline like newspapers, magazines and radio
- Increased Internet penetration in emerging markets like China, for example, where only around 40% of the population has Internet access (IMF)
Cloud computing, data center modernization and software-as-a-service (SaaS) — distinct areas of technology spending, but often viewed as interchangeable terms — will continue to garner a larger piece of the IT spending pie. The cost savings and operational efficiencies that these technologies provide make them impossible to ignore.
In this context, we would describe mobility as the proliferation of devices with wireless connectivity. What started out as basic cell phones have now become smartphones and tablets. And, increasingly, mobility is touching other markets like automobiles and medical devices, to name just two. To put this growth opportunity in perspective, IT analysts predict that by the year 2020, there could be 50 billion connected devices globally, compared with roughly 10 billion today. Hurricane Sandy helped underscore the need for consumers to be more mobile and for enterprises to reinvest in back-up recovery storage with greater implementation of cloud computing.
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