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The Doctor Is Making House Calls: Capturing Exposure to Telehealth

 

  • Telehealth is rapidly redefining the mix of health-care delivery systems in many countries, having gotten a major boost during the COVID-19 pandemic.
  • We used a combination of parsing company filings with natural-language processing and screening with MSCI ESG Ratings to identify companies that had strong telehealth exposure.
  • Our hypothetical portfolio outperformed both the MSCI USA IMI and the health-care sector from Jan. 1, 2015, to Sept. 30, 2020. It was possible to overlay ESG criteria without compromising the strength of the concept.

Telehealth — the delivery of health-related services and other non-clinical services by using electronic information and telecommunication technologies1 — has the potential to reduce inequalities in access to care as well as relieve strain on health systems. This may appeal to investors seeking to align their strategies with sustainable social objectives.

But identifying companies with strong telehealth exposure may be challenging as the concept is not directly captured by traditional sectors or factors. We tested an approach that combines natural-language processing (NLP) and MSCI ESG Ratings screens to build and analyze a hypothetical sustainable concept portfolio. Our approach to modeling the telehealth theme follows an MSCI process we used in our research on the remote operating capability factor.

 

Telehealth as a Sustainable Concept

The global outbreak of COVID-19 has strained health-care systems.2 Telehealth has existed as a component of the health-care sector for some time but has risen in prominence during the pandemic. While there are potential pitfalls (e.g., ensuring quality of care, the requirement of high-speed internet access and devices) that have hampered other remote work and educational activities, evidence shows that telehealth could improve service delivery processes, reduce climate impact3 and decrease stress on existing medical facilities.

 

Sample Telehealth Keywords and Phrases

 

The telehealth “keyword dictionary” served as input to a “concept-exposure” model, which employs NLP techniques on company filings to evaluate the relationship between companies and concepts (e.g., telehealth). The concept-exposure metric is a combination of two scores:

  • Semantic search (75% weight): This identifies text segments where companies describe what they do, such as what they produce, manufacture or design. Keywords that match the concept dictionary contribute to positive exposure. We weight this more heavily because the ability to capture the semantic direction of a sentence — that is, its meaning — is so important.
  • Word count (25% weight): This more naïve method simply counts the number of keywords from the concept dictionary in a company’s filing and normalizes it by document length.

 

We analyzed MSCI USA IMI constituents for the last five years (Jan. 1, 2015, to Sept. 30, 2020) using this metric. The word-count method identified 83 companies with a positive score, while the semantic-search method retrieved 42. The word-count method highlighted product mentions with heart rate and activity-tracking capabilities as well as products like employee health-care management systems that integrate telehealth as part of their solutions. These products are related to but do not directly drive the telehealth concept, supporting our decision to weight the semantic-search results more heavily.

As our hypothetical portfolio was intended to focus on a sustainable concept, we excluded any companies that were ESG Laggards (MSCI ESG Rating of B or CCC). Then we used a combination of the concept exposure and market capitalization as asset weights, with quarterly rebalancing frequency. After limiting the maximum asset weight to 10%, we arrived at a portfolio composition of 75 telehealth companies as of Sept. 30, 2020. The table below shows the top-five holdings and a sample extract of semantic search. 

 

Top-Five Holdings of Telehealth Concept Portfolio

Company  Sample Semantic Search Parsed Text 
Teladoc Health, Inc.  To deliver virtual care […] we have pioneered the development of a new clinical specialty, the Virtualist, […]. 
Honeywell International Honeywell Building Technologies products and services include […] remote patient monitoring systems.
Centene Corporation We offer telehealth services where members engage with customer service representatives and nursing staff.
Resmed Inc. We are also a leading provider of cloud-based software health applications and devices […].
Cardinal Health, Inc. The division […] provides medication therapy management, telepharmacy and health messaging services […].

Source: MSCI ESG Research. Concept exposure is defined as the portfolio-weighted average exposure.

 

Sustainable Telehealth Portfolio Characteristics

Overall, the ESG overlay led to an improvement in the ESG characteristics of the hypothetical portfolio without any loss of key concept exposure attributes or outright exclusions of Global Industry Classification Standard (GICS®)4 sub-industries during our study period.

 

Telehealth Concept Characteristics, with and Without an ESG Overlay

  Telehealth ESG  Telehealth  MSCI USA IMI Healthcare
Telehealth Concept Exposure  0.26  0.24 0.02
ESG Quality Score (ESG Rating) 8.45 (AA) 6.72 (A) 6.12 (A)
ESG Laggards (B-CCC) % 0% 13.5% 10.3%
Orange-Flag Controversies 22.7% 29.0% 46.3%

Source: MSCI ESG Research. Concept exposure is defined as the portfolio-weighted average exposure.

 

We used MSCI’s Barra US Total Market Equity Model for Long-Term Investors (USSLOW) to understand the characteristics and sectoral tilts of the hypothetical telehealth with ESG overlay portfolio. Comparing the active industry exposure against the benchmark (the MSCI USA IMI Health Care Index), we observed the telehealth concept portfolio leaned more heavily toward managed health care and health care providers and avoided sectors less related to the telehealth concept, such as biotechnology and pharmaceuticals. It also had non-negligible exposure to technology sectors, as expected.

Over our entire assessment period (January 2015 to September 2020), the telehealth concept portfolio outperformed its benchmarks. Using the USSLOW model to decompose the sources of risk and return, we observed that almost half of the risk was attributable to the stock-specific component, suggesting that the performance was not well explained by traditional sectors and factors.

 

Telehealth Portfolio Cumulative Performance

 

Telehealth Portfolio Risk and Return Attribution (vs. MSCI USA IMI Health Care Index)

  Jan. 1, 2015 – Sept. 30, 2020 Oct. 1, 2019 – Sept. 30, 2020
  Annualized Return  Annualized Risk Annualized Return Annualized Risk 
Total active  2.22% 10.59% 7.93% 9.37%
Styles -0.15% 4.49% 3.33% 8.30%
Industries 1.20% 4.46% -0.42% 5.25%
Stock-specific 1.16% 8.73% 5.02% 11.42%

 

Sustainable Investing Approaches

Can investors create a sustainable telehealth portfolio? In our study, we leveraged a concept exposure model to help construct a hypothetical telehealth portfolio. We then probed its sustainable characteristics. This case study presents a practical approach to identify companies with exposure to other sustainable concepts that might not be well captured by traditional sectoral classifications.

 

The authors thank George Bonne, Stuart Doole and Howard Zhang for their contributions to this blog post.

 

1“Telehealth Programs.” Health Resources & Services Administration.

2Ranscombe, P. “Rural areas at risk during COVID-19 pandemic.” Lancet, April 17, 2020.

3Vidal-Alaball, J. et al. 2019. “Impact of a Telemedicine Program on the Reduction in the Emission of Atmospheric Pollutants and Journeys by Road.” International Journal of Environmental Research and Public Health.

4GICS, the global industry classification standard jointly developed by MSCI and Standard & Poor’s.

 

 

 

Further Reading

Measuring Firm’s Remote-Workforce Abilities

Technology and Generational Change for Investors

Hunting a COVID-19 Factor

MSCI Perspectives Podcast: The Hunt for Pandemic-Related Investment Factors