Healthcare modernization, especially on home soil, is a long-term theme that has the potential to provide alpha, portfolio diversification and risk reduction, according to Jolon Knight, investment specialist at Hyperion Asset Management.

Speaking at the 2024 Pinnacle Investment Summit last month, Knight argued that there is an “abundance” of opportunity in this market.

Hyperion Australian Growth Companies Fund holds about a third of its allocation (31.4 per cent) in healthcare, including names such as ProMedicus, ResMed, Cochlear and Fisher & Paykel Healthcare.

By comparison, the fund's benchmark S&P/ASX 300 Accumulation Index has a weighting of approximately 10 per cent to the sector.

Expanding on this, Knight said, “Most of the burden on [S&P/ASX 300] the index is in financials, your banks and your resources companies, while the return profile of Hyperion and the companies in our fund are more weighted in healthcare names.

"If we think about healthcare, which has the biggest weight -- over 30 percent -- you have some of the leading healthcare providers in the world that have long-term double-digit growth."

In particular, ASX-listed Fisher & Paykel Healthcare and Cochlear were among the portfolio's top four contributors in the year to June 2024, according to the latest update.

Describing the double-digit growth as "very unique", Knight stressed that these tailwinds would be described as more of a novelty in other global markets.

"You don't usually see that," he said.

“When you look globally, the return profile of some of the biggest names is in the single digits and they are very mature. So you can actually invest in some of the world's leading healthcare businesses right here in Australia.”

He continued that domestically, stocks like ResMed meet Hyperion's criteria for "new global leaders in structural growth," which he characterizes as market disruptors with sustainable competitive advantages, structural headwinds and a large total addressable market, among other factors .

"We really think the abundance of growth gives you a unique opportunity to really invest in some of the best businesses in the world that are listed here in Australia," Knight said.

The investment executive also outlined growth that can be found outside of companies that return long-term double-digits with those that lack credible competition and a large global footprint.

“ResMed, Cochlear, Pro Medicus … we've owned them for a very long time. Again a really high quality business, monopolistic in nature with no credible competitor,” he said.

"And then when we think about the actual footprint that these companies can sell their products in -- almost every single company in our product has a global revenue base."

Knight pointed out that in 2017 over half (55 percent) of the Australian Growth Fund's revenue was raised domestically, while 45 percent of revenue came from offshore sources.

Since then, he said, the tide has turned; in 2024 about 77 percent of revenue comes from international sources, while less than a quarter (23 percent) is domestic.

"That's why we really think the quality of a lot of the companies we invest in has really gone up over time," Knight said.