During a painful year for equity investors in 2022, healthcare stocks offered a pocket of relative stability. Global healthcare stocks ended the year down just 5.4% in local currency terms, outperforming the MSCI World Index, which tumbled by 18.1% (Display). During the fourth quarter market rebound, healthcare stocks advanced more than 13%—also ahead of the global index.
So, what is it about healthcare stocks that fostered such solid performance patterns in both falling and rising markets? And do these features justify investing in a standalone single-sector portfolio?
Thematic Trends Transcend Macroeconomic Swings
To answer these questions, we need to understand why healthcare stocks were attractive even before COVID-19. Healthcare stocks benefit from long-term thematic trends, driven by efforts to mitigate the impact of disease through therapeutics, technology and services that span people to pets. Scientific progress is opening doors to new treatments while reducing costs. And demand for healthcare tends to transcend cyclical turns in the economy.
With global economic growth facing huge challenges, healthcare businesses can still perform well. That’s because the core driver of healthcare growth is people.
Global demographics support healthcare growth in different ways. In developed markets, an aging population will require more treatments. In emerging markets, faster population growth is fuelling demand for healthcare products and services as societies become wealthier and the middle class grows. These demographic trends will persist no matter what happens in the wider economy.