Two weeks ago, I wrote about the potential positive impact of the new US government on the financials sector so this week it is time look at healthcare.

The US is the world’s largest health care market, so political decisions there can have an outsized impact. The MSCI All Countries World Health Care index is about 11% off its 31 August high, but the election effect has been mixed. While vaccine producers have been hit, UnitedHealth Group, the leading US health insurer, is up.

The list of nominees to Donal Trump’s cabinet seems designed to provoke, and some of them may not make it pass the confirmation hearing stage. However, his choice of Robert F Kennedy Junior to head up the Department of Health and Human Services – overseeing the Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) – has caused consternation.

Kennedy Jr is a peddler of oddball theories on areas such as vaccines and fluoride in drinking water. However, Vivek Ramaswamy, co-head of the new Department of Government Efficiency wants to scrap the CDC altogether. Trump has also put Dr Oz, a TV personality, in charge of the Centers forMedicare and Medicaid Services.

Bellevue Healthcare (BBH ) fund managers Paul Major and Brett Darke are sanguine about this, publishing a piece entitled ‘Keep calm and carry on – this too shall pass’, which seems like a reasonable viewpoint to me. They feel that, notwithstanding his antipathy to anything invented under Biden, Trump will not repeal the drug pricing controls that the Inflation Reduction Act (IRA) introduced.

At Orbimed, Worldwide Healthcare (WWH ) fund manager Sven Borho has also addressed the issue. Speaking before the nominees were announced, he observed that the first drug price reductions negotiated under the IRA were not scheduled to come into effect until 2026, but there was a clear path to more of them. Any watering down of this intent would be taken as a positive for the sector, he said.

Borho acknowledged that healthcare investors were not expecting that the Republicans would end up with complete control of all branches of government, but felt that, on balance, a Republican administration could be better for the sector than a Democrat one. He thought that M&A activity within the sector would be easier to achieve, which would be good news for biotech as big pharma companies have to replace earnings from drugs that are scheduled to come off patent over the next few years. The manager also suggested that we could see some consolidation amongst the larger players.

Polar Capital Global Healthcare (PCGH ) fund managers are also optimistic about the long term, highlighting the attractive valuations in the sector and the long-term themes, such as ageing populations, that are driving demand for healthcare globally.

However, it is interesting that, ahead of the election, Gareth Powell and James Douglas took a 20% relative underweight exposure to the US compared to the trust’s benchmark. That has likely contributed to the trust extending its lead over WWH and BBH.

For them, a big part of the attraction to the sector is the scientific innovation that is broadening the range of diseases that are treatable. In 2023, a record 67 new drugs were approved and over 50 have been approved so far in 2024.

Ramaswamy, who made his money from biotech (including the flotation of a company focused on an Alzheimer’s therapy that subsequently failed a key clinical trial), wants to make it easier to get drugs approved. He says this will strengthen competition and lower prices, which chimes with Trump’s view on this. However, it seems logical to me that clinicians will make the same trade-off between the drug that gives patients the best outcome and the one that is affordable.

RTW Biotech Opportunities (RTW ) held an Investor Day last week. It has built up an impressive track record of identifying and backing promising science and its underlying investment return of 30.7% in the past 12 months is the best in the biotech and healthcare sector. Over the five years from its October 2019 launch, its 46.2% share price return beat the Nasdaq Biotech index gain of 16.3% and ahead of all rivals apart from PCGH.

Part of its success story has been in founding new companies such as Rocket Pharma and Corxel (formerly Ji Xing Pharmaceuticals). The latest of these is Kailera Therapeutics, which is focused on weight loss. RTW’s manager led a $400m funding round for the company in October. It is licensing technology from Jiangsu Hengrui Pharmaceuticals, a Chinese pharmaceutical company.

As the recent success of Novo Nordisk and Eli Lilly has demonstrated, the demand for GLP-1 obesity products is vast – so large that supply is not keeping pace with demand, which has led to some horror stories as consumers turn to copycat products. The efficacy of these products is improving as the original GLP-1 inhibitors are combined with other products. The range of demonstrable benefits from taking this class of drugs is expanding too as clinical trials demonstrate improvements in things like heart health and reduced kidney disease.

Other firms are chasing this success. For example, PCGH has profited from a stake in Zealand Pharma, which is bringing a GLP-1 product to market with Boehringer Ingelheim. RTW says that Kailera’s lead product is aiming to be best-in-class for an injectable treatment and should have less side-effects than existing products. It also has an oral version under development.

The political noise overshadowing the healthcare sector will take a while to fade, and some truly terrible outcomes are possible if vaccination rates fall sharply, for example. However, the sector was already relatively cheap and may thrive if some of the regulatory brakes are taken off. It might be wise to take advantage of this volatility.

James Carthew is head of research at QuotedData.

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