Co-authored by Treading Softly
Healthcare professionals faced significant challenges in 2020, dealing with the impact of the pandemic. While the recovery has favored other sectors, healthcare investments have been left behind. Factors like the loss of government stimulus, rising labor costs, and regulatory uncertainties have contributed to the negative sentiment towards healthcare companies. However, the long-term potential and cash flow generation of healthcare companies make them an attractive investment opportunity.
One notable closed-end fund (CEF) in this sector is Tekla Healthcare Investors (HQH). Since its inception, HQH has consistently outperformed the S&P 500. Despite its variable dividend policy, where it pays out 2% of its Net Asset Value each quarter, HQH remains a reliable choice for investors seeking exposure to healthcare.
For investors who value predictability, Tekla offers two other funds: Tekla World Healthcare Fund (THW) with a yield of 12.1%, and Tekla Healthcare Opportunities Fund (THQ) with a yield of 8.0%. Both funds offer fixed dividends and have similar portfolios, but THW has a higher exposure to non-US companies while THQ invests solely in US companies.
When comparing THW and THQ on a Net Asset Value (NAV) basis over the past five years, THW has experienced a decline of over 20%, while THQ has remained relatively flat. However, considering the dividends received, the total return for investors has been comparable. THQ has a more conservative dividend policy, while THW pays a higher yield.
CEF share prices are influenced by NAV fluctuations and dividend payouts. The market has rewarded THW for its aggressive dividend policy, trading shares at a premium to NAV, whereas THQ shares typically trade at a discount to NAV. Both funds present attractive opportunities for investors looking to capitalize on the potential resurgence of the healthcare sector.
Overall, investing in healthcare through funds like HQH, THW, and THQ allows investors to benefit from the expertise of portfolio managers, providing a steady stream of income without the need to choose individual companies. The income generated from these funds can contribute to financial security and provide returns comparable to the underlying portfolio’s performance.
As an investor, it is crucial to understand the nuances of your chosen sector and leverage the skills of experts to maximize success. By investing in high-yield passive income stocks like THW and THQ, you can enjoy the benefits of consistent income while minimizing the need to time the market or sell shares.