The healthcare sector, known traditionally for its lackluster performance, has emerged as a Cinderella with the S&P Healthcare sector having outperformed the broader index every year since the end of 2010, a record which no other sector can match.
The health sector has appreciated by 144% in the past four and a half years, which is more than double the 69% by which the broader S&P 500 index (SPX) has grown in the same period.
This means that the sector can no longer be viewed as just a hedging strategy, but as a solid investment area for growth.
The sector received an unexpected boost from the Affordable Care Act as people continue to register for health insurance according to Sam Stovall, equity strategist at S&P Capital IQ. The favorable 6 - 3 Supreme Court ruling in June, giving its approval and support for the law, may also help drive profits for the sector to even higher levels, said Stovall.
The appearance on the market of the high-tech wearables that allow sport and other training enthusiasts to monitor their vital body signs has also contributed to a growing public health awareness. This in turn relates to a greater emphasis on many of the products available from firms making up the health sector as well as the health and fitness monitoring services and devices that are on offer for the growing health conscious market segment.
The large gains in the healthcare sector have increased the sector weighting within the S&P 500 to 15.5%, near its record level over the past 20 years. The healthcare sector weighting has generally reached peaks during crisis periods such as 2001 or the Great Recession onset in 2009 as well as experiencing cyclical boosts at various intervals.
According to Sam Stovall, the growth in the weighting of this sector is partially due to the widening representation by the high-growth biotech sub-industry which stood at less than 10% in 2001 to the almost 22% exposure currently. In contrast to this however, Pharma’s weighting dropped from a 70% level at the end 2001 to the current 42 percent.
Stovall is still bullish about the healthcare sector and recommends, “an overweighting to Health Care as a result of unrealized growth from the ACA.”