Ineffective stock selection hindered results in Health Care, mostly due to a disappointing performance from Brazil's OdontoPrev (BSP:ODPV3, Financial), which primarily provides dental insurance services, including the management, sale, and provision of private dental care plans and services. At the end of July, the company actually reported an 87% increase in net profits for the second fiscal quarter. However, the market correctly saw this as a temporary, COVID-19-induced tailwind. With access to dentists substantially reduced due to regional lockdowns in Brazil, OdontoPrev's 'dental loss ratio' or dental reimbursement costs, fell from 45% of revenues a year earlier to just 33%. This loss ratio will correct in subsequent quarters and indeed swing the other way as lockdowns are lifted. This effect may be accentuated over the short- to medium-term if the economic downturn in Brazil continues to subdue membership growth for OdontoPrev's dental plans, thereby obscuring the otherwise compelling long-term growth potential in Brazi's dental market.
From Royce Investments Partners' International Premier third-quarter 2020 update and outlook.
