According to the United Nations, the global population will increase from 6.7 billion today to 9.4 billion by 2050. One-third will be over the age of 60. This makes a compelling story for investment in the healthcare industry, as the pharmaceutical, biotechnology, medical device, diagnostics, insurance sectors and hospitals strive to provide innovative products and services to meet the expanding challenges.
Facing expiring patents and the increased production of generic medicines, many pharmaceutical makers have diversified into new markets and new products through M&As, joint ventures or strategic partnerships with highly specialised biotechnology, medical device and diagnostics concerns. The new markets include emerging and developing regions, including India as well as countries in Africa and Asia, where double-digit sales growth is already being recorded.
Insurers and other financial institutions continue to launch funds that concentrate on investment in new care homes and sub-markets, such as day-surgery and critical-care units, as well as dementia care facilities — all of which are needed to serve the needs of the ageing population.
Private equity firms provide and raise development capital for smaller private medical device- and diagnostics-makers, some of which are partly owned by pharmaceutical conglomerates. Retail investors with a higher risk appetite have the opportunity to take part in these ventures.
The healthcare sector outperformed the UK FTSE All Share by 7% during the first half of 2009, and the biotech sector by 14% (Lipper), suggesting that such stocks can be considered defensive and able to provide good returns during economic downturns.
Portfolio diversification is key to providing a good balance between risk and return. Investors should consider including, or increasing their exposure to, healthcare-related stocks, funds or exchange-traded funds. There are certainly some interesting options.