Over the last five years, the S&P Health Care Index has averaged annual returns of 18% versus the S&P 500’s 12%. In our view, such outperformance is reflective of the defensive nature of the sector, strength of execution, and consistent and increasing returns of shareholder capital. We believe such outperformance can endure as the sector is primed to benefit from numerous structural tailwinds in the coming decades—e.g., an aging global population, longer life expectancies, and rising wealth levels.
Total global spending on health care as a share of gross domestic product (GDP) should continue to grind higher as the sector gains ground in relative economic importance. Rapid technological progress, a burgeoning appetite for mergers and acquisitions (M&A), and the sector’s defensive attributes round out the main ingredients that should propel the future performance of the sector. Given its scope and diversity, we believe health care offers a rich set of compelling opportunities for investors of varying tastes.