Investing in healthy longevity: Is the healthcare sector finally catching up?
The healthcare sector is a key driver of the sustainable investment theme of healthy longevity – and vice versa. After a prolonged dry spell, healthcare companies are now experiencing a comeback on the stock market. What has changed, and is it enough for the hoped-for turnaround?
Authors: Chi Tran-Brändli , Clément Maclou, Lead-Portfoliomanager, and Jürgen Siemer, Senior Analyst
Why the comeback of the healthcare sector is particularly important for investments in longevity
- The agreement between the U.S. government and the pharmaceutical companies Pfizer and AstraZeneca has removed some of the uncertainties surrounding the healthcare sector.
- Investors are now recognizing once again that, after years of underperformance, the healthcare sector is fundamentally undervalued.
- Not least because of its high innovative strength, the healthcare sector is central to the investment theme of healthy longevity.
From underdog to historic highs: In the first week of October, the healthcare sector experienced a dramatic turnaround. With an average gain of around 8% over five trading days, healthcare companies delivered their best weekly performance since 2022. Relative to the overall market, the sector's return was the strongest since 2002. This price surge was particularly striking given that healthcare had been one of the worst-performing segments in the stock market since the beginning of the year.
How did this spectacular comeback happen? And why is it significant beyond the short term for investors interested in the long-term trend of healthy longevity? These are the questions we aim to explore here.
Clearer rules for healthcare companies in the U.S.
The rapid recovery of healthcare stocks was triggered by the agreement between the American pharmaceutical company Pfizer and the U.S. government under President Donald Trump. According to the wishes of the US president, who likes to portray himself as a “deal maker,” the prices of Pfizer drugs for the state Medicaid program should in future be based on the lowest prices in OECD countries. The threatened 100% tariff on drugs will also be suspended for three years if production in the US is actually expanded. While this might initially seem like a setback for the company, it turned out to be a blessing from an investor's perspective. The Pfizer deal finally clarified the rules that could apply to the healthcare industry in the world's largest and most lucrative market for healthcare products.
A few days later, the British pharmaceutical company AstraZeneca reached a similar agreement, and Trump hinted at more such deals in the pipeline. These developments further brightened market sentiment.
The major benefit of the Pfizer agreement, in our view, is the greater visibility it particularly for pharmaceutical companies in the healthcare sector (see video above). It reduces many of the uncertainties that had previously burdened the U.S. market, including concerns about unpredictable or aggressive drug pricing reforms, potential tariffs on patented pharmaceutical products, fears of restrictions or cuts to Medicare and Medicaid budgets, and uncertainty surrounding leadership at key agencies like the Food and Drug Administration (FDA), which oversees drug approvals. While the agreements with Pfizer and AstraZeneca have not fully resolved these issues, they at least provide a clearer path forward.
Healthcare companies appear fundamentally undervalued
The newfound visibility also brought to light a fact that investors tended to forget due to the problems in the US: after around three years of underperformance relative to the broader market (see chart below), the sector is fundamentally favourably valued. According to analysts at Bank of America Securities, the valuation of the healthcare sector relative to the market had been this low only twice in the past 20 years before the Pfizer deal. Even with the recent rally, analysts expect the sector to trade at a 3-5% discount to the market in terms of the price-to-earnings (P/E) ratio by 2026.
Healthcare sector: Seemingly attractively valued after the sell-off
(Development of the EV/EBITDA ratio measured against the MSCI World Index, trailing 12 months)
Additionally, healthcare companies are in strong financial shape. Many have relatively low debt levels and significant cash reserves, providing them with the resources to invest in innovation and growth.
Beyond immediate market dynamics, the healthcare sector seems also to be supported by strong structural trends. One of the most significant is the aging population in industrialized countries—a development that is likely to continue regardless of Trump's policies and the geopolitical situation. The baby boomer generation is already 70 years old or older on average. According to United Nations estimates, the number of people aged 65 and over will double to more than 1.59 billion by 2050.
This demographic shift has profound implications. Aging populations are more prone to chronic diseases and other health issues, driving demand for treatments, diagnostics, and medical technologies. At the same time, people are not just living longer; they want to remain healthy, active, and independent for as long as possible.
Healthcare as an enabler to longer and healthier lives
The aspiration for longer and healthier lives forms the foundation of the long-term investment theme we refer to as healthy longevity. This theme is a key driver for the healthcare sector and vice versa (see video below), according to our analysis. Healthcare products aim to help people live longer and healthier lives through early diagnostics that detect diseases earlier, advanced treatments that maintain quality of life even in advanced stages of illness, medical technology that preserves mobility and independence, and preventive healthcare that focuses on preventing illness rather than just treating symptoms. These innovations are transforming the economics of healthcare and improving population health.
The healthcare sector is synonymous with research and development. It employs highly qualified scientists and invests heavily in new drugs, treatments, and technologies. This commitment to innovation ensures that the sector remains at the forefront of addressing the challenges and opportunities of healthy longevity.
Healthcare sector: Just on the Lower Rungs of the Ladder
The healthcare industry has only just begun climbing a ladder that, in our view, could lead to groundbreaking advancements in numerous areas. The foundation for this scientific progress lies not only in the continuous learning and collaboration of scientific communities but also in recent improvements in the tools researchers use. These advancements include:
- Large Databases and AI Algorithms: These tools are revolutionizing pattern recognition, enabling breakthroughs in areas such as image processing, drug-body interactions, and correlations between DNA expression and disease risks.
- Enhanced Visualization Technologies: Significant improvements in visualizing interactions between drug molecules and proteins, enzymes, or cells are providing researchers with unprecedented insights into biological processes.
- Protein and Antibody Modifications: New methods allow for the modification of proteins or monoclonal antibodies to block tumor-defending receptors, bind toxins, or even attach immune cells directly to tumor cells. These innovations include bi-specific and tri-specific antibodies, which are opening new avenues in cancer treatment.
- DNA Modification and Repair: Emerging technologies now offer new ways to modify or repair mutated DNA in human cells, paving the way for transformative therapies in genetic disorders and beyond.
These tools and technologies represent only the initial steps toward a future of unprecedented breakthroughs in healthcare and medicine. The potential for innovation in this sector is vast, and we believe the industry is poised for extraordinary progress in the years to come.
Investment theme «Healthy Longevity»: Insights
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This document only serves advertising and information purposes and is not directed at persons in whose nationality or place of residence prohibit access to such information under applicable law. Where not indicated otherwise, the information concerns the collective investment schemes under the law of Luxembourg managed by Swisscanto Asset Management International S.A. (hereinafter "Swisscanto Funds"). The products described are undertakings for collective investment in transferable securities (UCITS) within the meaning of EU Directive 2009/65/EC, which is governed by Luxembourg law and subject to the supervision of the Luxembourg supervisory authority (CSSF).
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