In our view, the macroeconomic and market environment in the coming years will be defined by the mega forces of demographics, deglobalization, a delayed energy transition and mounting public debt. Their impact points to an environment of structurally lower growth as well as higher and more volatile inflation, which in turn leads us to expect lower equity returns and higher market volatility than over the last 15 years. There is an open question: How much can AI offset some of these challenges, particularly through a broad-based productivity increase?
We believe that our outlook warrants a strategic overweight in the US healthcare sector. In the near term, it could play an important role in diversifying away from heavy market concentration in tech as well as in stabilizing portfolios during market drawdowns. In the longer run, healthcare should be a structural beneficiary of an aging US population, with its pricing power enabling sustained real earnings growth—even in a world of structurally higher inflation. We also view the sector as one of the clearest potential AI beneficiaries. Multiple possible applications could increase productivity and cut drug-development costs, improve research and development (R&D) efficiency and effectiveness, and drive better customer services and care.
While we acknowledge considerable policy uncertainty surrounding US healthcare in particular, the current sector valuation and investors’ positioning should limit the potential downside and provide an attractive entry point.
US healthcare’s share of the overall equity market has fallen to its lowest in 15 years, currently standing at only 10%. Today’s negative sentiment toward the sector is also evident in its current valuation. The 12-month forward-PE multiple of US healthcare versus the market is near an all-time low. Globally, the picture is similar, with healthcare trading significantly below the historical average valuation.
