Investment Focus: Is healthcare a good investment right now?
By Boring Money
24 June, 2026
After several years of underperformance, healthcare stocks are starting to attract renewed attention. Backed by ageing populations, growing demand for treatment and a strong pipeline of innovation, the sector could be well placed for a recovery as investors look beyond the technology boom.
Why do investors like the healthcare sector?
The healthcare sector may have had a difficult period, but its long-term investment credentials are sound. It is supported by some unstoppable long-term trends, including ageing populations, innovation and emerging market growth. It even looks set to be a significant beneficiary of AI, while also providing diversification
from the technology giants. Healthcare companies have a pipeline of demand delinked from economic growth, driven by needs rather than wants.The healthcare sector is diverse. In aggregate, it makes up 8.6% of the MSCI World index
[1], mostly comprising pharmaceutical giants such as Eli Lilly, Johnson & Johnson, or AbbVie. However, alongside these behemoths are biotechnology companies, medical devices groups, healthcare services, such as care homes or doctors’ surgeries, and also health technology companies and life sciences groups. Each gives a different risk and return profile.The overall demand for healthcare is supported by an ageing population. In the UK, almost one in five (19%, 11 million) people in England are aged 65 and over, and almost two in five (38%, 22 million) are aged 50 and over [2]. The number of people aged 65 and over in England is projected to increase by 3.3 million in the next 20 years and by 6.5 million in the next 40 years.
A similar picture is seen across most major developed economies. In Japan, for example, the picture is extreme, with almost 100,000 people aged over 100 [3]. Around one-third of its population are over 65. Inevitably, older people have greater healthcare needs. In the UK, healthy life expectancy – the length people live without needing major medical interventions - is just 61 years old [4].
However, it is not just old age that is driving the healthcare sector. There have also been astonishing medical advances in recent years in areas such as cancer, genomics, and obesity. There is an increasing ability to treat a range of diseases.
The fundamental state of the global healthcare industry remains exceptionally strong, underpinned by a continued wave of scientific innovation.
The innovation power of the healthcare industry was seen during the Covid era, when biotechnology, healthcare and medical devices companies came together to solve a complex problem.
Another driver for healthcare has come from emerging markets. As emerging markets grow and develop, so do their healthcare expectations and needs. Many of these countries are at the foothills of developing comprehensive universal healthcare and better services. Private sector hospitals and facilities are flourishing for those who can afford it. This creates new sources of growth for domestic and international healthcare businesses.
The persistent problem for the sector has been that it is political. Often healthcare falls to governments rather than individuals, and there is persistent debate over the extent to which taxpayers should foot the bill for burgeoning costs. This means governments need to keep a lid on healthcare spending, and the sector is subject to occasional controversies.
The dominance of the US has also been an issue for the sector. The MSCI World Healthcare index is over 70% invested in US companies, and the US accounts for around 40% of global healthcare spending [5].
Source: Statistica as of 25/06
The average American spends around $14,775 on healthcare, compared to just $6,747 in the UK, $7,367 in France and $7,301 in Canada [6]. This means political developments in the US have a disproportionate effect on the market. Often the healthcare sector will become more fragile around US elections on fears over changes in policy.
Source: Health System Tracker as of 25/06/2026
Why has healthcare underperformed in recent years?
It has been a tough period for the healthcare sector. The MSCI World Healthcare index has seen an annualised return of just 6.7% over the past three years, compared to 22.4% for the broader MSCI World index.
Healthcare companies have struggled with a series of difficulties: there was some overvaluation in the wake of the pandemic, but healthcare companies have also been in the crosshairs of US tariffs and controversy over pricing. Borho said this constrained performance in 2025:
While the broad market was able to shake off US tariff concerns by May, continued rhetoric from the Trump administration on both pharmaceutical tariffs and US drug pricing kept a lid on the healthcare sector for an additional five months, leading to a stark underperformance… These issues, in particular, the perceived threat of a calamitous change to federal drug pricing rules through the proposed “Most Favoured Nation” pricing policy, kept investors away from healthcare, especially given the broader stock market rally.
The US administration was concerned that pharmaceutical companies had been taking advantage of the structure of the US healthcare system, using it to push up prices. Certainly, drug prices were higher in the US than elsewhere in the world. For pharmaceutical companies, the threat to their largest market was a real concern. In the end, deals were agreed individually with the pharmaceutical companies and share prices started to recover.
This event triggered a decoupling from the broader market and began a sustained rally based on fundamental clinical and commercial execution, given the partial easing and clarification of tariffs. Even as the broader market collapsed in March 2026 due to the Iran conflict, specific subsectors within healthcare – most notably biotechnology – demonstrated remarkable resilience, insulated by a historic wave of merger and acquisition activity that highlighted the inelastic demand for therapeutic innovation.
Share prices were also dented by ongoing concerns on Robert F Kennedy Jnr’s stewardship of the US Health Department. A vaccine sceptic, he has shifted funding priorities and changed key personnel at Department of Health and Human Services, the Federal Drugs Administration and the Center for Disease Control and Prevention. However, he has rowed back on more extreme measures, which has reassured the market.
The initial rally in healthcare companies has ebbed recently, with investors more focused on the potential gains from AI. Over one year, the MSCI World Healthcare sector is up 12.7%, compared with 28.0% for the MSCI World index. There has been stronger performance from areas such as biotechnology, where there has been plenty of merger and acquisition activity, but weaker performance from healthcare services and medical devices.
What is the outlook for healthcare stocks?
The long-term outlook for healthcare remains compelling, with the three major trends intact – demographics, emerging market growth and innovation. These look set to support spending on healthcare over the long-term. There is also greater clarity on US policy. The pricing problem has largely been resolved, although risk remain from further tariffs or future policy changes in the US.
A growing elderly population around the world will have to be cared for…In all the major economies (and most of the rest) the proportion of the population over the age of 65 is already surging to levels never seen before. Even the over-80s cohort, once an insignificant minority, is rapidly becoming a component to be reckoned with. The global population of people 65 years and older will approach 1.6 billion by 2050, according to the UN.
There are still areas ripe for innovation within healthcare.
The Alzheimer’s Association estimates that in 2025, total health care costs for all individuals in the U.S. 65 years and older suffering from Alzheimer’s disease reached $409 billion, considerably more than cancer and cardiology care combined.
This remains a priority for healthcare companies and a potential source of significant returns, just as obesity drugs have proved.
AI also presents a significant opportunity for the sector. Carrier says personalised cancer vaccines are an example of what might be achieved.
Custom-designed for each patient’s unique tumour profile, they remain prohibitively expensive. However, by using AI to dramatically accelerate the identification of individual tumours, personalized cancer vaccines are becoming increasingly viable, with potential approval from the U.S. Food and Drug Administration within the next two years, subject to positive results from final-stage clinical trials.
Gareth Powell, manager on the Polar Capital Global Healthcare trust, says another reason for near-term optimism is the mid-term elections in the US, especially if the Democrats claim a majority in the House of Representatives and the Republicans hold on to the Senate.
That scenario would effectively create legislative gridlock, with any major healthcare reforms highly unlikely to be signed into law. If policy fears continue to ease, then investors’ attention can be drawn to strong industry fundamentals, attractive valuations and the opportunity to generate returns.
Looking further out, there is a high level of confidence that healthcare companies will continue to innovate and successfully launch new products and devices into large commercial markets. There appears to be a concerted effort to improve access to care and to generate much-needed efficiencies to ensure the outlook for the industry, and investors, is a positive and sustainable one.
On the flip side, there are still risks for the pharmaceutical companies. Many are facing patent expiries. This is when drugs go off patent, meaning competitors can launch generic alternatives at lower cost. Pharmaceutical companies need a strong pipeline of new drugs to manage these expiries. It is this phenomenon that is partly driving merger and acquisition activity, as pharmaceutical companies buy up innovative biotechnology companies.
How can I invest in the healthcare sector?
There are plenty of broad-based healthcare ETFs listed in the UK. The iShares Global Healthcare ETF, for example, has around 69% of its holdings in pharmaceutical, biotechnology and life sciences companies, with the remainder in healthcare equipment and services. X-trackers, State Street, Vanguard and Amundi also have healthcare ETFs.
There are also specialist ETFs, such as the Global X Telemedicine and Digital Health ETF, or the Franklin Future of Health and Wellness. There are specialist biotechnology ETFs, or ETFs specialising in medical devices. There are also regional options, with ETFs focused on US, European or emerging market healthcare companies.
There is also a broad range of active funds, particularly in the investment trust sector. The AIC’s healthcare and biotechnology sector includes generalist trusts such as Polar Capital Global Healthcare, but also specialist biotechnology trusts, such as the Biotechnology Growth trust, RTW Biotech Opportunities and International Biotechnology. Syncona invests in life sciences businesses. The IA Healthcare and Biotechnology sector has a similar range of options. There are funds specialising in oncology, for example, in sustainable healthcare, and in life sciences.
Alternative options with a different return profile include some of the healthcare property investment trusts. Target Healthcare Reit holds a portfolio of care homes, for example. This aims to generate capital growth, alongside a higher income and currently has a dividend yield of 5.5%.
The healthcare sector is starting to revive after a long period of weakness. It provides a notable contrast to some of the highly valued and speculative AI names and may be an important source of diversification in a portfolio. Healthcare companies have historically provided a ballast for portfolios during periods of market volatility. Investors may come to appreciate these qualities once again if the market wobbles.
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[1] MSCI World Index
[3] BBC News
[5] Statistica
