The steady demand for medical care helps the healthcare sector remain resilient during market volatility. As per Janus Henderson Investors, investing in healthcare could offer an attractive combination of defense and growth.

The investment manager says that the industry is rapidly witnessing significant expansion, presenting a potential source of diversified returns for investors.

While explaining the two sides of investing in healthcare — innovation and growth and the higher risk of meagre returns.

Talking about the first side, Janus Henderson says that advances in genetic sequencing and other scientific techniques have opened up new avenues for the diagnosis and treatment of illness.

On the other hand, growing family affluence, an ageing population and the increase of both public and private insurance coverage are driving up demand for medical care. Thus, the asset manager states that a combination of innovation and escalating demand has increased the healthcare sector’s revenues.

However, there are certain risks involved for investors as well. “Research shows that 90% of compounds that enter human clinical trials never make it to market. Of those that do, we’ve found investors over or underestimate a product’s commercial potential 90% of the time,” writes Andy Acker, Portfolio manager at Janus Henderson Investors.

“Such odds can result in sharp equity moves. In fact, over the past decade, the disparity between top and bottom performing stocks in healthcare was the largest of any sector,” he adds.

But the asset manager believes that investors have been more inclined to reward innovation, with certain equities seeing substantial increases. Cheap valuations have also piqued the curiosity of large-cap biopharma firms, with several mergers and acquisitions announced last year at more than 100% premiums, making a strong case for investing in healthcare.

“The healthcare sector is not without its challenges. Labour shortages, regulation, and waning COVID-related sales could weigh on some stocks. But in our view, the sector’s long-term outlook more than makes up for any near-term headwinds, and the opportunity to generate uncorrelated returns – while at the same time delivering benefits for patients – is only growing stronger,” Janus Henderson concludes.

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