Why invest in the healthcare sector
The healthcare sector has significant, long-term growth potential for investors.
Global healthcare expenditures account for 10.2% of the world’s GDP and are set to grow, creating opportunities for investors. With global GDP projected to increase to US$137 trillion by 2030, and healthcare expenditures projected to remain at 10% of GDP, this translates into US$14 trillion in healthcare spending per year by the end of this decade1.
History has shown that global healthcare was the best performing sector during the GFC (Global Financial Crisis) between 2007 to 2009 and during the Sovereign Debt Crisis in 2011. Healthcare has been the second best performing sector behind Information Technology during COVID-19 Pandemic in 20202.
Types of healthcare companies to invest in
There are a range of different types of healthcare companies for investors.
Investing in pharmaceutical companies
Pharmaceutical companies are engaged in the research, development or production of pharmaceuticals. Veterinary drugs are also included in this sector3. Most known for its diabetes medication, Novo Nordisk is an example of a pharmaceutical healthcare company.
Investing in biotechnology companies
Biotech companies primary engage in the research, development, manufacturing and /or marketing of products based on genetic analysis and genetic engineering. The biotech subsector also includes companies specializing in protein-based therapeutics to treat human diseases4. Gilead Sciences, which focuses on virology medicines, is an example biotech healthcare company.
Investing in healthcare equipment and supply companies
This includes manufacturers of healthcare equipment and devices like medical instruments, drug delivery systems, cardiovascular and orthopedic devices, and diagnostic equipment. In addition, this healthcare subsector includes healthcare supplies and products not classified elsewhere, including eye care products, hospital supplies and safety needle and syringe devices5. Sonova, which specialises in hearing devices, is an example of a heathcare equipment and supply company.
Investing in healthcare providers and services companies
These healthcare companies are providers of patient healthcare services, are distributors and wholesalers of healthcare products, or owners and operators of healthcare facilities, including hospitals, nursing homes, rehabilitation centers and animal hospitals6. Molina Healthcare is a FORTUNE 500 company that provides healthcare insurance and is an example of a healthcare provider company.
Key drivers of growth in healthcare
The global healthcare sector offers significant growth potential due to shifting global demographics, social changes, research & development and innovation supporting increased demand in healthcare-related products and services over the long term.
There are three key drivers of growth for the global healthcare sector which will collectively create higher and sustainable levels of healthcare expenditure globally.
The world’s population is expected to grow by 800 million people by 2030 and the number of older persons (people aged 60 or over) is projected to grow to more than 1.4 billion, significantly increasing the need for healthcare and healthcare companies. In the US, individual life-time healthcare expenditures are around US$500,000 with more than half spent during the senior years7.
The world’s population is getting older and as people age the consequences of a lifetime of poor lifestyle choices for millions is taking a toll on their health, driving health care expenditures higher. In addition, people with chronic conditions are intensive users of health services, and the associated costs of care tend to be much higher. For example, 70% of total health funding in England is spent on services for 30% of the population that have long-term conditions8.
Developed markets spend substantially more on healthcare compared to their emerging market counterparts. As the economies of the world’s emerging markets grow and develop, so too will the requirements for healthcare. Given 83% of the world’s population lives in emerging markets9, the investment requirement for healthcare products and services is significant as these countries evolve economically.