Billionaire hedge fund manager Jim Chanos is sceptical about healthcare stocks once again.
Without explicitly saying that he’s short the sector, and so betting that healthcare stocks will fall in 2016, he’s called it out as one sector investors should avoid next year.
Chanos was part of Fortune’s latest Investor Roundtable moderated by Ritholtz Wealth Management’s Josh Brown and published Wednesday.
Here’s what he said when Brown asked what investors should do with their money in 2016:
“Well, since I’m a glass-half-empty kind of guy, I’m going to tell the viewers and the readers maybe some places they should avoid. Nobody’s talked about health care, and although health care costs have begun to slow as a percentage of total economic growth and as a percentage of GDP, one of the things that’s happened in 2014 and 2015 is that the actual consumer is paying a higher part of it.
Either because companies continue to cut benefits or because of the ACA [Affordable Care Act], Obamacare, co-pays are higher. And people actually pay more out of pocket. That is having an impact, and it’s going to have a political impact, of course, on 2016 as well. I think the days of real easy unit and pricing growth in health care may be behind us, and those are very elevated prices right now.
I think that, increasingly now, people are going to look at the downside of the ACA.”
Chanos went short healthcare in 2010 right before the Act was passed. He had believed that federal spending on health care would fall. But when it became clear that spending would actually rise, he admitted the short was a wrong call.
A major Supreme Court ruling in June held up subsidies for over six million Americans, increasing the number of clients with insurance. It was seen as a big plus for health care providers, whose shares surged after news of the ruling crossed.
However, Chanos says people would begin to focus on the negatives of Obamacare going forward.
We’ve seen a frenzy of mergers in the sector this year, as healthcare providers look for ways to cut costs and stay competitive. One of the goals of Obamacare was to heat up competition and keep costs low for consumers.
Healthcare stocks, and the biotech sector, have had a strong run this year. But in recent months, the sector has come under rapid fire on all sides.
There was the tweet that wrecked several shares, sent by democratic presidential frontrunner Hillary Clinton, indicating her administration would take on price gouging in the sector. And when Chanos talks about “pricing growth in health care”, that’s the kind of thing Clinton would tackle head-on if she was president.
And, the US Senate launched a bipartisan investigation into drug pricing, focusing on Valeant Pharmaceuticals.
“Anybody that’s been dependent on raising prices aggressively as their business strategy is going to be under a microscope, we know that,” Chanos said.
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