A safe bet for investors

Against a backdrop of uncertainty and market volatility, healthcare presents investors, particularly those willing to invest in the long-term, with comparatively steady returns

Global stock markets have faced increasing volatility in the face of monetary policy tightening and negative sentiment following the crisis in Ukraine. Against this backdrop, commodity costs are rising and the price of brent crude spiked to highs north of $130 per barrel. In response, investors are turning to safe-haven assets such as US Treasuries, the Japanese yen, Swiss franc and gold, all of which have performed well, helping them to limit their exposure to losses.

However, while these safe-haven assets may continue to perform well in the near term, they also present a number of drawbacks as a form of protection during the current crisis in Ukraine. For example, with the Swiss franc exposed to the European economy, it could be negatively impacted if energy supplies are interrupted. Longer-duration US treasuries meanwhile do not offer attractive yields, particularly in the face of imminent central bank rate rises. And gold faces headwinds from rising real rates as the Fed tightens and inflation moderates.

One smarter way for investors to insulate themselves against current market volatility, in our view, is to build defensive exposure into portfolios. Global healthcare is a particularly attractive sector for two key reasons. First, healthcare costs are expected to rise faster than economy-wide inflation. Second, with average life expectancy on the rise, health-related expenditures make up an increasing portion of total spending.

Moreover, thanks to the sector’s high exposure to the US and pharma, the sector benefits from a stronger dollar.

Currently, attractively priced in a lower-growth environment healthcare could subsequently outperform the broader stock market. In our Year Ahead report, we identified that many investors seem to share the same sentiment, with 64 per cent of surveyed investors considering healthcare the second most attractive sector to invest in, just after tech. But with digitalisation only just beginning to take-off across the sector, with uptake driven by the recent Covid-19 pandemic, healthtech is an emerging sector set to transform the entire industry thanks to innovative and disruptive solutions presenting significant opportunities.

In particular, technology is set to revolutionise the healthcare industry, with medtech stocks, which offer both defensive characteristics and structural growth exposure, accounting for a third of healthcare market capitalisation. Medical devices can assist in the treatment of many conditions and an increasing number of people aged over 65 will likely use them. The market, which includes Implantable or wearable devices, is said to be worth around $132bn.

Other promising health technologies include those focused on driving efficiencies across the sector. As a growing number of healthcare providers recognise this potential, they are looking to technologies such as electronic health records that can help improve patient care while reducing costs by sharing medical information between providers. Other technologies such as the use of artificial intelligence to deliver and improve diagnostics are also gaining popularity.

And finally, another area of promise worth mentioning is genetic therapy. It offers the potential for removing defective DNA, which can remove the cause of an illness and restore health. This technology represents a paradigm shift in medical care compared to traditional drug treatment.

Big pharma and biotech companies have spent $44bn acquiring cell and gene therapy companies since 2017 with the estimated market potential of current late-stage genetic therapies pipeline standing at $20bn.

Against a backdrop of uncertainty and market volatility, healthcare presents investors, particularly those willing to invest in the long-term, with comparatively steady returns. Ongoing population growth, increasing life expectancy and urbanisation, combined with technological advancements, mean that healthcare spending will only increase in the years and decades ahead, making this asset class not only a safe haven, but one of the more interesting opportunities in this area.

BIG PHARMA AND BIOTECH COMPANIES HAVE SPENT $44bn

ACQUIRING CELL AND GENE THERAPY COMPANIES SINCE 2017