For investors in Hong Kong

Amid volatility, healthcare’s appeal grows

Andy Acker, CFA

Andy Acker, CFA

Portfolio Manager

4 May 2022

Portfolio Manager Andy Acker discusses healthcare’s first-quarter performance and why the sector could offer both defence against market volatility and opportunities for long-term gains.

Key takeaways

  • Healthcare’s non-cyclical industries, such as pharmaceuticals, helped the sector to outperform during a challenging first quarter.
  • But a year long sell-off in small- and mid-cap biotech stocks continued as investors worried about rising interest rates.
  • In our view, depressed valuations and accelerating innovation make biotech particularly attractive for long-term investors, while other areas of healthcare could shine near term.

View transcript Expand

Healthcare stocks declined during the first quarter, but held up better than the broader markets. I think this was really due to the defensive characteristics of much of the healthcare sector. We’re now in a rising-rate environment with concerns about a slowing economy, and the defensive characteristics of healthcare, especially certain sub-sectors, really stand out in this kind of environment. So, in the first quarter, we saw, for example, large-cap pharmaceutical companies, drug distributors and health insurance companies – that really function almost independently of economic activity – all outperform during the quarter.

Biotech stocks in the last year have seen one of the biggest drawdowns on record on an absolute basis and, by far, the largest we’ve ever seen on a relative basis. This has been driven by a number of factors, from concerns about rising interest rates to concerns about potential reform of drug prices.

In many cases, we believe these concerns are overdone, and the valuations in the sector look extremely compelling to us, with many companies trading below the levels of cash on their balance sheet and others trading as if they have very little in their pipelines, even if we think they have real innovation that could have a significant impact on human health.

Despite the drawdown in biotech, we believe innovation in the sector is alive and well, and not only that, it is actually accelerating. We’re expecting to see major new clinical trial results in very important areas like cancer, Alzheimer’s disease, obesity, diabetes, muscular dystrophy, just to name a few. And we think the next few decades could be some of the most important in terms of real innovation that can change the practice of medicine.

We also could see significant M&A [merger and acquisition] activity pick up again after a period of really subdued activity, and this is driven by two factors primarily. First of all, major pharmaceutical companies will have over $500 billion in cash on their balance sheets and many of them have pipelines that need refilling. We also have many biotech companies, again, that are trading at very discounted valuations, in our view, so we do expect to see a pickup in activity and that could also relight excitement about the biotech sector.

That’s why, with the pullback that we’ve seen recently and with innovation thriving in the industry, we believe it’s an attractive time to be looking at the healthcare sector.


Health care industries are subject to government regulation and reimbursement rates, as well as government approval of products and services, which could have a significant effect on price and availability, and can be significantly affected by rapid obsolescence and patent expirations.

Volatility measures risk using the dispersion of returns for a given investment.

Any reference to individual companies is purely for the purpose of illustration and should not be construed as a recommendation to buy or sell or advice in relation to investment, legal or tax matters.

Important information

Please read the following important information regarding funds related to this article.

Key investment risks:

  • The Fund's investments in equities are subject to equity market risk due to fluctuation of securities values.
  • Investments in the Fund involve general investment, currency, hedging, economic, political, policy, foreign exchange, liquidity, tax, legal, regulatory, securities financing transactions related and small/ mid-capitalisation companies related risks. In extreme market conditions, you may lose your entire investment.
  • The Fund may invest in financial derivatives instruments for investment and efficient portfolio management purposes. This may involve counterparty, liquidity, leverage, volatility, valuation, over-the-counter transaction, credit, currency, index, settlement default and interest risks; and the Fund may suffer total or substantial losses.
  • The Fund's investments are concentrated in companies (may include small/ mid capitalization companies) with life sciences orientation and may be more volatile.
  • Investors should not only base on this document alone to make investment decisions and should read the offering documents including the risk factors for further details.
Andy Acker, CFA

Andy Acker, CFA

Portfolio Manager

4 May 2022