Diagnosis: Big opportunity in healthcare stocks

Healthcare is both one of life’s necessities and also the lifeblood of equity portfolios – especially as investors seek resilience amid macroeconomic turbulence. Dr. Erin Xie, Lead Portfolio Manager at BlackRock Health Sciences, answers the big questions facing healthcare investors today. 

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What makes healthcare a compelling opportunity now, particularly amid high inflation and slowing economies?

The healthcare sector has a history of stability and outperformance during periods of both recession and inflation, as healthcare demand has remained stable regardless of macroeconomic conditions. Global healthcare earnings growth has been steady and above the market average historically. [See the chart below.] And the healthcare sector also has a history of resilience during inflationary periods. We view healthcare as a structural growth sector, driven by global aging trends.

Should investors expect to pay up for this kind of opportunity?

Healthcare stocks are not expensive today and, in fact, are priced below the broader market. Slowing economies call for the resilience that healthcare companies can offer, in our view. Yet the sector remains at a 10% discount to broad global equity markets compared to an average premium of 3% over the past two decades.¹

We shouldn’t confuse “defensive,” with “boring.” What are some of the exciting areas of healthcare innovation you are monitoring?

We are seeing some incredible developments in potential treatments for the world’s most prevalent and fast-growing diseases, such as cancer, diabetes, Alzheimer's and obesity. Decades of genomics research are now paying off, leading to a deeper understanding of the root causes of diseases as well as a new wave of medicine.

For example, new therapies for obesity and diabetes could add more than US$100 billion of revenue to the US$1.5 trillion prescription drug market, according to our analysis.² These drugs have rapidly become some of the fastest-growing medications in the pharmaceutical space. Originally developed to treat diabetes, they have had the added benefit of promoting weight-loss.