Global Investing

CHAPTER 14Healthcare

________________

The global healthcare sector provides goods and services that many of us, quite literally, cannot live without. As discussed in Chapter 2, countries tend to increase healthcare spending as their economies grow. This supports the industry's sales growth and provides a long-term secular tailwind for your portfolio should you invest a portion of your assets in healthcare companies that operate in countries whose economies are growing strongly and that are likely to increase healthcare spending.

Data source: Bloomberg, as of March 18, 2022.

Businesses in this sector are regarded as defensive in nature, because many of them generate fairly stable revenue and profitability even in weak economic environments. This is not true of all healthcare companies, though. Some healthcare services are more discretionary in nature than others, and some are dependent on the outcome of a single drug or medical device, which can make the earnings of those businesses much more volatile. Despite having similar sales growth to the market, dividend growth has been above average. Over the past few years, valuations have been somewhat below the market.

The defensive nature of the healthcare sector means that it tends to outperform during bear markets but underperform at the beginning of a new bull market. In this chapter we take a closer look at the six main industry ...