Healthcare stocks understandably have received a lot of attention over the past 18 months.
The arrival of COVID-19 vaccines promised a return to a (more) normal life, and as the vaccine rollout began, companies like Pfizer, Moderna, and AstraZeneca dominated headlines – not just for their success in producing a vaccine, but also because of the billions the companies were making from the vaccines and the strong performance of their stock prices.
The big news of late concerning the pandemic is of course the new variant, Omicron. The announcement shook global markets during the last week of November. But not all stocks took a beating. Within the S&P 500, the healthcare sector rallied, led by the vaccine stocks. Moderna soared more than 20% on Black Friday, while BioNTech produced 14% gains and the European drug maker’s vaccine partner, Pfizer gained 6% Friday1.
Following on from these gains, some of the vaccine stocks did slip as Moderna’s Chief Executive announced that their vaccine may be less effective against the new variant2. On the other hand, Pfizer expects their vaccine to hold up against Omicron3.
In this article we explore the broader role the healthcare sector can play in your portfolio, during and post-COVID-19.
Investors can access the global healthcare sector via the BetaShares Global Healthcare ETF – Currency Hedged (ASX: DRUG).
The healthcare sector
The global healthcare sector itself currently makes up ~13% of the S&P 500 (as at 30/11/2021)4 and can broadly be defined by six sub-categories – pharmaceuticals, biotechnology, medical equipment, sales, insurance, and facilities5.
Healthcare is generally regarded as a defensive sector, which means that it has the potential to provide stable earnings during times of economic uncertainty. In considering the investment merits of healthcare, we need to look at both COVID-19 considerations and factors beyond the pandemic.
COVID-19 brought to the fore the importance of governments and companies working together to safely and quickly produce a viable vaccine.
The development and success of the messenger RNA technology (mRNA), used by Pfizer–BioNTech and Moderna in their vaccines6, has led to increased promise of the future of these types of vaccines in combating other diseases such as Zika, multiple respiratory viruses, melanoma, HIV, Epstein-Barr and malaria7. Further, Pfizer-BioNTech, Moderna, and other vaccine producers that utilise mRNA have begun to use the technology to develop flu vaccines8.
Looking beyond vaccines, global lockdowns have changed the way patients interact with healthcare professionals and manage illnesses while isolated. According to McKinsey, telehealth use has increased 38 times from the pre-COVID-19 baseline9. Further, thanks to the increased consumer adoption of digital health, “up to $250 billion of current U.S. healthcare spend could potentially be virtualised”10.
Source: McKinsey; Telehealth: A quarter-trillion-dollar post-COVID-19 reality?11
One company investing in this space is Align Technology (~1% weighting in DRUG as at 2/12/2021) which was recently recognised for its Invisalign Virtual Care solution which enables remote communication between doctors and patients12. Further, companies such as Abbott Laboratories (~4% weighting in DRUG as at 2/12/2021) have been at the forefront of developing stay-at-home and rapid antigen tests13.
Capturing the future of healthcare
While COVID-19 has changed many facets of everyday life and had a significant impact on the healthcare sector, it is important to consider the positive long-term tail effects this will have on the sector, beyond just the vaccine players.
These long-term effects and the large number of companies at play highlight the potential benefits of gaining diversified exposure to the sector via an ETF such as DRUG, enabling access to both the existing large players in the space, and the smaller innovative companies.
There are risks associated with an investment in DRUG, including market risk, international investment risk, healthcare sector risk and concentration risk. For more information on the risks and other features of DRUG, please see the Product Disclosure Statement available at www.betashares.com.au. A Target Market Determination is also available at www.betashares.com.au/target-market-determinations. An investment in DRUG should only be considered as a component of a broader portfolio.
1. https://edition.cnn.com/2021/11/29/investing/vaccine-omicron-variant-covid-stocks/index.html
2. https://www.theguardian.com/business/2021/nov/30/moderna-boss-predicts-current-vaccines-may-be-less-effective-against-omicron
3. https://www.bloomberg.com/news/articles/2021-12-02/pfizer-executive-expects-vaccine-to-hold-up-in-tests-vs-omicron
4. https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
5. https://www.businessinsider.com.au/how-to-invest-in-healthcare-stocks-2021-1?r=US&IR=T
6. https://www.bloomberg.com/news/articles/2021-09-13/vaccine-stocks-pfizer-moderna-on-covid-mrna-investment-breakthrough
7. https://www.dw.com/en/from-covid-to-malaria-the-potential-of-mrna-vaccines/a-58694888
8. https://www.healthline.com/health-news/why-a-new-mrna-based-flu-vaccine-may-be-the-most-effective-yet
9. https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/telehealth-a-quarter-trillion-dollar-post-covid-19-reality
10. https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/telehealth-a-quarter-trillion-dollar-post-covid-19-reality
11. https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/telehealth-a-quarter-trillion-dollar-post-covid-19-reality
12. https://investor.aligntech.com/news-releases/news-release-details/align-technology-wins-best-virtual-care-platform-award-medtech
13. https://www.reuters.com/business/healthcare-pharmaceuticals/rapid-covid-19-tests-increasingly-scarce-pricey-demand-employers-jumps-2021-10-05/
This article mentions the following funds
Written by
Alex Cook