Introducing the Lux Health + Tech Index™
“If you can’t measure it, you can’t improve it.” — Peter Drucker
In October 2020, Lux presented its thesis about the secular wave of innovation at the intersection of healthcare + technology. Today, we are doubling down on that thesis and naming names by unveiling the Lux Health + Tech Index™ [NASDAQ: NQHTEC], an index of 57 publicly traded companies that together best represent the rapidly emerging Health + Tech investment theme. It is a total return, equal-weighted index informed by Lux’s sector-leading expertise in investing at the cutting edge of healthcare and technology.
New technologies and their application to healthcare are just now starting to disrupt the broader sector, which is dominated by healthcare technology giants founded, on average, nearly 100 years ago. By contrast, the companies comprising the Lux Health + Tech Index have an average age of about nine years as public corporations and are leveraging the most powerful core technologies — AI & machine learning, robotics and automation, and machine vision, among other groundbreaking innovations — to increase access, reduce friction and cost, and dramatically improve patient care. We believe these companies better represent the sector as it is evolving and will continue to do so well into the future. This is not to say more well established companies will not adapt to change, but given their size, bureaucracy, and cultures, they will not be able to optimize benefits from the intersectional application of new technologies. We believe those companies built around recent advances in AI, machine learning, and automation (to name a few) will increase their inherent advantage over time and reflect the heart of the healthcare market.
Index Criteria
For inclusion, an issuer must have a market cap greater than $500mm (USD) and be involved in some aspect of the health tech industry, which Lux broadly defines as medical and surgical devices, clinical diagnostics, healthcare related business/productivity software and other healthcare technology (i.e. digital health). This includes companies that deploy cutting edge technology across telemedicine, advanced imaging, sequencing, robotics, molecular diagnostics, connected hardware and medical devices. Historical revenue growth was also considered for inclusion, with some discretion allowed if revenue growth is outweighed by qualitative factors. Specifically, issuers with revenue growth greater than 10% in two of the past three years are included, unless the company has priced its public offering within two years of constitution and only has two years of financials available. In this case, only one year of annual growth above 10% is required. For a company to stay in the Index it must have grown annual revenue at least 7% in at least one of the last two calendar years.
The Index is rebalanced quarterly on the second Friday of January, April, July and October. Moving forward, the Security Eligibility Criteria are applied using market data on the first Friday of the aforementioned months which serve as the quarterly Index selection dates. The results of the Index selection will be applied to the Index on the Index rebalancing date and shares are fixed on the selection date. The Index is disseminated publicly in real time (every 15 seconds) and follows the NYSE holiday calendar. Standard tax withholding rates are implemented where dividends are reinvested back into the dividend paying security. The timing of the dividend adjustment is on the open of the effective date of the dividend. Late dividend treatment is not applied.
Q1 2021 Index
Several companies in the Index started more than 20 years ago as fast moving VC-backed startups before blossoming into public mega caps, like Intuitive Surgical ($86.5 billion market cap) and Illumina ($58.6 billion market cap). While others are incredibly innovative and more recent IPOs, like Butterfly Network ($3.4 billion), 10x Genomics ($18.1 billion market cap) and Berkeley Lights ($2.9 billion).
Since the start of the pandemic, some of the most brilliant minds in technology have been drawn into healthcare, away from digital advertising and payroll software, realizing the profound impact their skills can have on the world. The United States spends nearly twenty cents of every dollar in GDP on healthcare and yet yields one of the lowest life expectancies among developed countries. The marriage between healthcare and technology has the potential to impact everything from how patients interact with care providers, to how diagnostic data is obtained and analyzed, to how intervention is recommended and executed, to how outcomes are measured and quantified.
And this is only the beginning.
