Investments in the health care sector, like any other segment, are just one piece of a diversified portfolio. For investors, the sector can offer a unique blend of innovative growth prospects and defensive attributes that may help their portfolio perform through a variety of market conditions.
The COVID-19 pandemic, however, impacted prospective investment opportunities in health care. But as we move into a post-pandemic world, what should investors consider when evaluating future potential opportunities in the health care sector?
Labor shortages and supply chain challenges remain
While COVID-19-related hospitalizations are a fraction of what they were earlier this year, pandemic-related supply chain disruptions and labor shortages remain challenges to overall health care utilization and elective procedures. In our opinion, these macroeconomic factors could remain a material headwind in the near term.
For risk-averse investors, defensive value industries continue to be a good option
The 2022 market environment has favored the more defensive, value-oriented areas of the health care sector.
Year-to-date through August 2022, the S&P 500® health care sector has outperformed the S&P 500 Index. Below the surface, managed health care, pharmaceuticals and biotechnology have performed well compared to the broader sector and market. We view these areas as well-positioned to navigate the challenges of the post-pandemic health care landscape.
In our view, many of the large health insurers, biotechnology and pharmaceutical companies may be less susceptible to post-pandemic macro headwinds, such as labor shortages and supply issues. These companies also tend to be high-quality businesses with strong financials that often support attractive growing dividends for shareholders.
Overall, we expect COVID-19 to be less disruptive in 2023 than it was in 2022 and 2021, when the Delta and Omicron variants caused spikes in cases and hospitalizations. However, investors may want to continue to favor the defensive, value-oriented areas of the health care sector noted above until visibility improves on the lingering post-pandemic macroeconomic challenges.
How do health care investments fit into your portfolio?
Your Ameriprise financial advisor can guide you to the appropriate health care sector investments for your portfolio, which may include dedicated health care sector mutual funds, exchange-traded funds, or individual stocks, depending on your investment strategy.