Healthcare Leaders Optimistic on Economy, Strategic Position

A large majority of survey respondents say the economy is poised for growth, and nearly half say the healthcare sector is looking better than in recent years.

Healthcare executives are bullish on the American economy and warming to the idea that the healthcare sector has a bright future, according to a recent analysis by investment consulting firm NEPC.

The study found that healthcare leaders are optimistic about the economy, the healthcare sector, and their own relative strategic positions. Nearly two-thirds (63%) of respondents believe the economy is well-positioned for future growth, NEPC reports, and almost half (48%) said the healthcare sector is better positioned this year compared to recent history.

These are additional findings from the study:

• Sixty-one percent of respondents believe the new tax law will help the economy, and the vast majority (98%) anticipate positive returns from the S&P 500 this year.
   
• Most participants are willing to maintain or even increase their investment risk profile.
   
• The majority of respondents believe emerging market equities (28% of respondents) and alternatives (26%) will be the best-performing asset classes this year—two classes that tend to generate the most volatility.
   
• Other asset classes selected by respondents as the year's potential top performers are international developed equities (17%), domestic equities (13%), and hedge funds (13%).
   
• When asked about what they consider to be the greatest threats to their investment performance over the near term, participants cited geopolitical uncertainty as the biggest threat, followed by a potential global slowdown. Three-quarters (74%) of respondents characterized rising interest rates as a minor concern.
   

"The study found a correlation between performance and risk. The healthcare organizations with a higher level of expected risk also tended to have stronger returns last year," said Dave Moore, partner and head of NEPC's healthcare practice. "Broadly speaking, the lower-rated systems with lower days cash on hand [DCOH] expressed an increased appetite for risk, while some of the better-rated systems with higher DCOH indicated a minor reduction of risk. The potential for an increase in investment risk may be reflective of a reduction in operational risk. However, this is difficult to assess."

Healthcare organizations' portfolio risk profiles may come under increased scrutiny with an uptick in market volatility, Moore added.

"Later this year, we suspect we may see a shift in asset allocation toward becoming a bit more defensive in preparation for the possibility of a market downturn," he says. "Already, the participants we surveyed appear to be tactically adjusting their risk exposure."