Staying Defensive in Healthcare

Against a challenging backdrop, the healthcare space was one of the best performing sectors in 2018 due to its low sensitivity to global growth.  In the following interview, Erin Xie, Head of Health Sciences, Fundamental Active Equity of BlackRock shares her outlook for the healthcare sector and its late-cycle potential to outperform.

 

Q1)  How did the healthcare sector perform overall in 2018 as volatility jolts? Also, as the late-cycle approaches, how do you see the sector performing moving forward?

2018 was an eventful year for global equity markets, with significantly more volatility than in the past 10 years. Performance for the MSCI World Index was more than -5% negative and this was a stark reminder to investors that despite the experience of the last 9 years, equity markets don’t always go up and to the right.  One of the bright spots during the year was the healthcare sector, which delivered more than 2% outperformance over the full year and displayed relative stability in a volatile market.

Looking at the historical analysis of sector performance through market cycles in the past 25 years, healthcare has consistently outperformed other sectors during late cycle and recessionary periods. For example, the healthcare sector has on average outperformed by +7.0% during late cycle periods relative to broad equity markets1.

The analysis also concluded that the healthcare sector has displayed the least sensitivity to global growth historically. The sector displayed the lowest beta (4.3) versus the quarterly change in real GDP since 1995, compared with a median of 7.7 across the remaining Global Industry Classification Standard (GICS) sectors2.

With this in mind, we see today’s late cycle environment as being an attractive entry point. We continue to hold conviction on healthcare, not solely based on the current market cycle outlook, but also due to the secular growth and product innovation that are underpinning the sector.

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