A recent report from VanEck Australia suggests that after two down years for healthcare stocks, emerging tailwinds could spark a rebound.
The report said healthcare stocks have lagged over this period, mostly due to potential US policy effects on the growth rates for biopharma, healthcare plans, and medical technology firms.
The tide is turning
According to VanEck, over the past two years, healthcare stocks underperformed relative to the broader market.
This is despite catalysts such as innovation and progress in weight-loss drugs.
However, the ASX ETF provider said the tide could now be turning.
Recently, there has been some clarity on healthcare policies, increased M&A activity, as well as interest from investors who are rotating back into defensive growth and quality earnings due to the volatile macro environment.
Additionally, recent earnings season results from Q3 in the US shows over 80% of reported healthcare companies have "surprised to the upside", and price reactions post earnings have also been positive.
Looking ahead, the long-term structural growth drivers, including ageing populations, chronic disease management, med-tech adoption, and digital health, remain present.
Emerging tailwinds
VanEck pointed towards changing policy in the US as one emerging factor set to benefit the sector.
It said there has been renewed clarity on US drug pricing policy following the Pfizer–Trump administration agreement.
The agreement included exchanging Medicaid cost cuts for tariff relief.
The ETF provider said this has lowered market fears of sweeping "most-favoured-nation" (MFN) mandates that would have pressured pricing across the sector.
Pfizer, Merck, and Johnson & Johnson all experienced price rises after the announcement due to improved sentiment toward the sector.
VanEck believes the sector is now trading at a relative value to the broader market.
With macro uncertainty at the forefront of investors' minds, many are rotating toward defensive growth, benefiting healthcare broadly and many investors are targeting those companies with quality characteristics and/or wide moats.
How to target global healthcare stocks
Healthcare stocks are relatively underexposed on the ASX compared to sectors like financial (Big four banks) and materials (mining giants).
This means Aussie investors are often looking overseas to tap into healthcare markets.
The team at VanEck believes long-term structural trends supporting the sector could make it an ideal time to gain exposure to international healthcare stocks, including:
- The combination of global population growth and ageing demographics.
- Increasing prevalence of chronic diseases, which will continue to drive up the demand for healthcare.
- Increasing expenditures in emerging economies that need to close the gap to match the levels of spending in developed economies, as their growing and increasingly wealthy populations will demand it.
For investors looking for diversification into global healthcare stocks, there are several ASX ETFs offering focussed exposure to this sector.
Investors may consider:
- Vaneck Vectors Global Health Leaders ETF (ASX: HLTH) – Gives investors exposure to a diversified portfolio of the largest international companies from the global healthcare sector.
- iShares Global Healthcare ETF (ASX: IXJ) – Made up of more than 100 global equities in the healthcare sector.
- BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG) – Aims to track the performance of the largest global healthcare companies (excluding Australia).
Another option for investors looking for overweight to the sector, with a broader fund, could consider Vaneck Vectors Morningstar World Ex Australia Wide Moat ETF (ASX: GOAT).
It has a 25.7% allocation to the healthcare sector within a portfolio of attractively priced international 'wide moat' companies with sustainable competitive advantages.
