The S&P/ASX 200 Index (ASX: XJO) comprises 11 market sectors, and the outperformer over the past decade may surprise you.
It's not the flashy tech sector, nor the sectors home to the mega-miners or the Big Four bank shares.
It's healthcare.
Let's find out why.
Image source: Getty Images
Why has healthcare outperformed other sectors?
Over the past 10 years, the S&P/ASX 200 Health Care Index (ASX: XHJ) has grown by about 220% in terms of capital growth (dividend returns excluded).
This compares to about 40% growth for the ASX 200.
In an article published on asx.com.au, Bell Direct market analyst Grady Wulff explains why healthcare has outperformed the broader market.
Wulff said:
Bell Direct considers that this is due to high government and private health insurer spending in the sector. … these two key drivers, paired with the earnings potential for healthcare companies that achieve commercialisation of a drug or treatment, have underpinned the healthcare sector's outperformance over 10 years.
ASX 200 private health insurance providers include Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF). Take a look at these 10-year charts tracking their share price growth.
The ASX 200 has many success stories in terms of healthcare stocks that have developed and commercialised new drugs or treatments.
Of course, CSL Ltd (ASX: CSL) is the first one that comes to mind.
CSL has created several therapies in the areas of immunology, hematology, cardiovascular, metabolic, respiratory, and medical transplants. It also manufactures influenza and COVID vaccines and antivenoms.
This chart documents CSL's 10-year performance. CSL shares have risen about 330% over the period.
Wulff points out that heavyweight stocks can meaningfully impact a whole sector's performance. In the case of healthcare, CSL shares alone account for more than 55% of the sector, she said.
Newer drug development success stories include Telix Pharmaceuticals Ltd (ASX: TLX) shares, up about 2,450% over the past 10 years, and Neuren Pharmaceuticals Ltd (ASX: NEU) shares, up about 750%.
Ms Wulff commented:
When investing in the healthcare sector, Bell Direct sees a trend of investors either buying into the early stages of pre-clinical trials or at the commercialisation phase as the company progresses through lengthy clinical trials and receives the required regulatory approvals to hit the market.
Pandemic winners among ASX 200 healthcare shares
Healthcare was the only ASX 200 sector to rise in the early pandemic period.
Investors opted for secure returns from healthcare providers who were directly involved in helping the world through the crisis.
Examples include pathology testing business Sonic Healthcare Ltd (ASX: SHL) and personal protective equipment (PPE) manufacturer Ansell Ltd (ASX: ANN).
These charts below document their COVID-era rise and then fall as demand went back to normal post-pandemic.
In FY24, Pro Medicus Limited (ASX: PME) shares were not only the healthcare sector's highest-rising stock but also the top stock of the ASX 200.
