S&P/ASX 200 Index (ASX: XJO) healthcare shares have broadly underperformed the benchmark over the past year.
Over the last 12 months the ASX 200 has gained 6%. As for the big healthcare stocks, the S&P/ASX 200 Health Care Index (ASX: XHJ) has gone the other way, shedding 10%.
Looking at some of the leading healthcare stocks, biotechnology company CSL Ltd (ASX: CSL) shares are down 14% over that time. While sleep technology company ResMed Inc (ASX: RMD) has seen its share price tumble by 35%.
Of course, not all ASX 200 healthcare shares have lost ground. Cochlear implant device manufacturer Cochlear Ltd (ASX: COH), for example, has enjoyed a 32% increase in its share price over 12 months.
Still, with the broader healthcare sector in retreat over the past year, the outlook for 2024 is looking bright, according to Janus Henderson Investors.
Strong outlook for ASX 200 healthcare shares
Despite the lagging performance in 2023, Janus Henderson Investors portfolio managers Andy Acker and Dan Lyons say the sector's long-term outlook "appears stronger than ever".
"We think this is an attractive time to be investing in the healthcare sector," Acker said.
He noted that "it's usually after a period of underperformance that investors get less interested".
However, Acker believes that's a common mistake, saying that instead, this is "exactly when we think an investor should be more interested".
Despite signs emerging of a potential 'soft landing' for the economy, Janus Henderson believes we could still be in for "a substantial slowing of the economy and a potential recession, especially as we get into 2024".
This could benefit ASX 200 healthcare shares, as Acker believes this is when "the defensive characteristics of the healthcare sector really rise to the fore and become more appreciated".
According to Acker:
At the same time, the valuations in the sector are at significant discounts to the overall market, whereas historically, they trade at premiums because of their durable nature of growth in the sector.
And long-term investors in ASX 200 healthcare shares could benefit from the innovation sweeping the sector.
Acker added:
You have this wave of innovation where we're seeing this revolution in biology that's driving so many new products. This year we think will be a record year for new products; as many as 80 could be coming to the market.
And this is driving a whole new product cycle in healthcare that we think could drive growth, not just for the next few years, but for the next decade or more.
ASX 200 healthcare shares, and smaller ASX healthcare stocks, could also be set to benefit from a sharp uptick in mergers and acquisitions (M&A).
"I've seen estimates of around $600 billion of cash that's out there available for potential spending on M&A," Lyons said. "And we think that's going to be an important driver of interest in the sector, as well."
