Healthcare Investing Finding Growth Beyond Pharmaceuticals

Drugmakers don’t have to dominate a healthcare portfolio. Equity investors should cast a wide net across the sector to find innovation and growth.

Pharmaceutical companies often grab the limelight in the healthcare sector. From COVID-19 vaccines to Alzheimer’s treatments, groundbreaking pharma products aim to cure the afflictions of humanity and improve quality of life. Investors are often enamored by the promise of a potential blockbuster drug to eradicate an intractable illness—and deliver a healthy flow of profits.

Since big pharma companies rank among the largest healthcare weights, they often dominate sector positions in a global equity portfolio or a stand-alone allocation. Yet focusing too much on pharmaceuticals could limit a portfolio’s potential. Companies that manufacture diagnostics, technology and equipment to address the world’s most pressing medical issues have become increasingly important for progress in the healthcare sector.

Changes to the healthcare benchmark over the last two decades reflect this shift. The weight of pharmaceutical companies in the MSCI World Health Care Index has fallen from 82% in 2000 to 41% today (Display). Other industries have become more prominent, offering equity investors a broader array of opportunities in areas such as life sciences tools and services, technology and equipment.

The Healthcare Sector Looks Very Different Today