Opinion Leaders
Healthcare: Structural Growth Meets Valuation Discipline
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Rune Sand-Holm
Portfolio Manager
DNB Asset Management
The global healthcare sector regained momentum in July. Whilst global equities rose by 0.5 per cent in US dollars, healthcare rose by 1.5 per cent. The sector thus outperformed the broader market by one percentage point. In our view, the key factor was not just the gain itself, but the broader nature of the recovery: life sciences suppliers and medical technology took the lead, supported by a positive earnings season.
Life Sciences and Medtech lead the way
The strongest impetus in July came from two sectors. Life Sciences Tools & Services gained 8% after several companies reported impressive quarterly results. Medtech rose by 5%, marking its first positive month since November. This development shows that investor attention is once again focusing more strongly on companies demonstrating tangible operational progress and robust growth drivers.
The picture for the year as a whole remains mixed, but the recent movement is noteworthy: since the start of the year, global equities have gained 10.5 per cent, whilst healthcare has risen by 3.7 per cent. July did not close this gap, but it did demonstrate the potential for catch-up in individual sub-sectors when company results and expectations align once more.
Strong quarterly results create new momentum
Dexcom, Iqvia and Regeneron are prime examples of the drivers behind July’s recovery. Dexcom rose by 24% following strong quarterly results and better-than-expected margin performance. The medtech company thus illustrates just how strongly the market reacts to a combination of growth and improved profitability.
Iqvia gained 22 per cent. In addition to convincing quarterly results, a 19 per cent increase in new orders and the raised full-year forecast were decisive factors. For providers of clinical research services, rising order intake is an important indicator of future capacity utilisation and thus of business visibility.
Regeneron also rose by 22 per cent. The quarterly results were driven by better-than-expected sales of Dupixent and Eylea. This example underscores the importance of commercially established products that can simultaneously deliver further growth contributions. Overall, the positive contributions within the portfolio were broadly based; several medtech and healthcare service providers were also among the month’s strongest relative performers.
Within the portfolio, we shifted the weighting in July towards what we consider to be a more attractive risk-return profile. HCA Healthcare and Stryker were newly added. In the hospital sector, following the divergent share price performance since the start of the year, we see a more attractive balance between long-term potential and valuation at HCA. In the medical technology sector, we believe Stryker currently offers a balanced combination of quality, long-term return potential and risk.
Outlook: Structural growth meets valuation discipline
Short-term sector rotations are difficult to predict. We are therefore focusing on high-quality healthcare companies whose long-term value creation is underpinned by innovation, sustained demand and strong execution. Several structural factors continue to support the sector: ageing populations, the increasing prevalence of lifestyle-related diseases, continuous innovation and significant investment needs in emerging markets.
July provided a clear update on this front. The recovery has broadened, operational progress has been rewarded, and several sub-sectors have gained new momentum. For investors, however, stock selection remains crucial. Our approach therefore remains unchanged: to capitalise on structural growth opportunities whilst remaining disciplined in terms of valuation and portfolio risk.
