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Healthcare - remedy for market stress

15th August, 2018

As the US economy moves into the late stages of the current cycle, equity markets may be close to their peak. However, specific sectors still offer relative outperformance and downside protection. The healthcare sector is defensive in nature and tends to outperform in the later stages of the economic cycle. There are several key drivers that should lead to stronger performance of the sector for years to come including innovation, demographics and globalisation.

As global living standards improve life expectancy rises, meaning the world is getting older. In the US there are almost 50 million people over the age of 65. This has caused an increase in healthcare spend which is likely to continue to rise as cases of diseases, including diabetes and cancer, increase. The result is greater spending on drugs that treat non-communicable diseases, which generally command a higher price tag.

The increase in life expectancy has also caused increased investment in research and innovation. Between 2014 and 2017 there were 154 drugs approved by the US Food and Drug Administration (FDA), an almost 70% increase from the 2006 to 2009 period. This is a trend that is expected to continue as innovation continues.

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