Healthcare Stocks: Four Questions for the Recovery

Disappointing returns for healthcare stocks through the market’s recovery from the pandemic have raised concerns about the sector. But there’s still plenty of promising growth potential to be found. These four questions can help investors identify areas of interest.

Since the pandemic began, many investors have paid close attention to the healthcare sector. Yet global healthcare stocks have trailed the broader market since the recovery from the COVID-19-related crash began in April 2020 and in the year to date (Display).

Two sets of bars show MSCI World Healthcare returns vs MSCI World, from April 2020 to May 2021 and year-to-date through May.

Why the underperformance? First, the sector was affected by a rotation into more economically sensitive industries and out of more defensive industries such as healthcare as investors positioned for an economic reopening post COVID-19. Second, unprofitable small- and mid-cap biotech companies have sold off this year, following strong but volatile gains in 2020. Lastly, rising interest rates have suppressed gains for growth stocks in general—including healthcare—which tend to benefit from lower discount rates. But these trends don’t undermine the long-term appeal of innovative healthcare companies with strong business fundamentals, in our view. The following questions can help guide the way to attractive opportunities in the sector.

1. How has the development of COVID-19 vaccines changed the healthcare industry?