The healthcare sector is an important market on the world stock exchange, with particular characteristics.
In the United States stock market it represents approximately 13% of the market, confirming it to be one of the largest and most complex sectors of the financial markets.
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The healthcare sector
Lately, due to the pandemic situation, it has been widely covered in financial newspapers in relation to large companies concentrated in the production of vaccines and other medical devices.
The healthcare sector, however, is much broader. In fact, it includes the following categories:
- biotechnology and pharmaceutical companies, which develop and distribute drugs, tests and vaccines;
- hospital companies and medical clinics, which directly provide healthcare services to patients;
- medical device companies, which can help doctors or patients for whom they develop medical technology.
A defensive sector
The healthcare sector is considered a defensive sector. This means that it is suitable for difficult times, is quite acyclical, and more stable.
It includes mainly large-cap companies with solid balance sheets characterized by large cash flows and heavy spending on research and development. These characteristics make the healthcare sector very attractive.
Furthermore, it is thought that it will be an ever-growing sector in the future, due to some factors such as:
- the increase in the number of elderly people, which will lead to an increase in demand for drugs and medical care;
- the development of new highly innovative medical technologies, a key word in healthcare;
- increasing accessibility to care especially in developing countries;
- the growth of health spending in the various nations of the world, both public and private.
All these factors will clearly stimulate the healthcare sector, which will respond to these needs with new technological innovations, some of which we can think of:
- biotech and medtech;
- robotic surgery for precision medicine;
- liquid biopsy;
- home medicine, remote assistance via e-health systems;
- genetic study and genetic therapies;
- medical devices such as wearables or other tools connected with 5G and AI;
This is to demonstrate that there are many interesting projects that offer countless investment opportunities.
How to invest in healthcare
Although healthcare is considered a defensive sector, it is still a very profitable sector.
The healthcare sector, averaging the 2021 annual returns of the 10 main global stock funds specialized in the health sector, according to data provided by Morningstar, has an annualized return of approximately 20.12%.
If you want to decide to invest in this sector, and you are not already an expert investor, then it will be better to avoid buying individual shares, as it is a very complex sector full of innovations. These characteristics also make it quite unpredictable. This would expose you too much to a huge specific risk.
However, active funds or thematic ETFs are more recommended, such as Health Care Select Sector SPDR ETF, Vanguard Health Care Index Fund ETF, or iShares Nasdaq Biotechnology ETF.
This way you will be able to diversify as much as possible in this sector with many different companies that have different business models.
Naturally it is important to maintain a diversified portfolio, therefore it is also advisable not to invest solely in this sector, which is not without risks, and to do so with a long-term perspective of at least 5/10 years.
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