This earnings recovery came after an earnings slump for healthcare companies in the years following the 2020 COVID-19 pandemic, as demand receded for vaccines, lab equipment, and R&D related to the virus.

Investor sentiment in the healthcare sector began to rise again in 2024, with around A$80 million of fund inflows to the iShares Global Healthcare ETF (ASX: IXJ) last year – placing IXJ within iShares’ top 20 ETFs in Australia for 2024 on a funds inflow basis [2]. 

Investor interest in the healthcare sector has continued to grow in 2025. Globally, iShares healthcare sector ETFs have seen more than US$155 million net fund inflows since the start of this year [3].  

So, what are the key factors contributing to renewed investor optimism in the healthcare sector? 

Innovation and regulation

Political changes in the US have caused some healthcare investors to re-evaluate their positive outlook toward healthcare, particularly in the vaccine and pharmaceutical sectors. While leadership within key US federal agencies will no doubt shape regulatory agendas, BlackRock’s view is that immediate or drastic policy changes around vaccines, drug approvals and pricing are unlikely. 

According to BlackRock analysis, healthcare, by sector, has one of the lowest supply-chain exposures to China, and the strongest earnings growth of all sectors in the Q1 2025 US earnings season.

Thus, healthcare may prove to be a relatively more resilient portfolio exposure, compared to some other sectors, if global trade uncertainty continues. 

Beyond trade policy, Blackrock believes the regulatory agenda of the new US administration may lead to more flexibility around healthcare mergers and acquisitions and potentially ease scrutiny on technology patents, possibly delivering sector-wide benefits [4]. 

Healthcare innovation 

Longer term, BlackRock is of the view that innovation in areas like obesity medication, surgical robotics and oncology – the branch of medicine that specialises in cancer – may continue to drive growth in healthcare this decade. 

In Blackrock’s opinion, Glucagon-like peptide-1 agonists (GLP-1s), which treat diabetes, have emerged as one of the most significant and contemporary therapeutic trends influencing the healthcare landscape in recent years.

Despite a huge increase in GLP-1 users from 2021-2023, only a small percentage of eligible obese patients worldwide are using these medications, showing that there is still potential for growth (see chart below). 

In BlackRock’s opinion, making these medications available in pill form could potentially reduce manufacturing costs, as nearly half of the weight loss drugs currently being developed are tablets [5]. 
 

GLP-1 penetration of obesity

Source: Novo Nordisk, December 2023

Additionally, the global surgical robotics market is expected to grow by US$16 billion over the next seven years [6].

Oncology is another source of innovation, with more than 100 new cancer treatments, including antibody and cell therapies, expected to launch within the next five years, driving an expected US$400 billion in pharmaceutical spending by 2028 [7]. 

As with many industries, artificial intelligence (AI) has potential to transform productivity in the healthcare sector. Currently, 90% of biotechnology drug candidates fail to progress through clinical trials and gain regulatory approval, with timelines to market spanning 12–18 years [8].  

However, with numerous healthcare companies leveraging AI-powered tools, either through in-house development or strategic partnerships, these drug-discovery timelines could potentially be rapidly accelerated to expedite research on diseases and improve patient-recruitment strategies.
 

Healthcare risks

Of course, there are risks involved with investing in any single sector of the global equity market, such as healthcare. 

In a broad sense, investors should consider any investment in healthcare as one part of an overall diversified portfolio. They should also consider their time horizon before investing.

In terms of specific healthcare risks, any future higher US tariffs could impact costs for healthcare providers – particularly in the pharmaceutical sector, where drug manufacturers could be significantly affected. 

Furthermore, drug development is a lengthy and expensive process, with a high failure rate. This can lead to substantial financial losses for pharmaceutical companies, impacting their profitability and stock performance. This is an important consideration for investors in the healthcare sector.
 

Achieving a balanced portfolio diet

Investors with an existing portfolio of broad Australian and global equities may have less exposure to healthcare on a relative basis to other sectors. 

For instance, the S&P/ASX 200 Index is made up of approximately 10% healthcare stocks versus 19% materials and 34% financials, while the MSCI World Index has 11% healthcare exposure compared to 24% technology and 17% financials [9]. 

In BlackRock’s view, adding global healthcare stocks to a portfolio can potentially help diversify investments and reduce risk during market downturns [10].

Healthcare tends to outperform broader equity markets during market downturns. The chart below shows the S&P Global 1200 Healthcare Index outperforming when global equity markets had negative returns over 2022, 2018 and 2015.
 

Healthcare performance during broad equity market sell-offs

Source: MSCI/S&P/BlackRock data, as at 31 January 2025. Chart refers to all calendar years 2014-2024 where global equities (as represented by the MSCI World Index) generated a negative return. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.
 

Conclusion 

In BlackRock’s view, the global healthcare sector is poised for potential future growth and transformation and is traditionally viewed as a more defensive play and portfolio diversifier.

As such, BlackRock believes the features, benefits and risks of the global healthcare sector are worth investor consideration in 2025. 

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[1] Indexes are unmanaged and one cannot invest directly in an index

[2] Source: BlackRock data as of 29 January 2025

[3] Source: BlackRock data as of 25 April 2025

[4] Source: Bloomberg, December 2024

[5] Source: Biospace, April 2024

[6] Source: Market.us, October 2023. Forecasts may not come to pass.

[7] Source: IQVIA, July 2023. Forecasts may not come to pass.

[8] Source: Fierce Biotech, November 2024

[9] Source: S&P and MSCI data as of 30 April 2025

[10] Diversification and asset allocation may not fully protect you from market risk. Holdings are subject to change

*Subscription based, closed-ended financial data system that investment managers use for their analysis.

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