The healthcare sector is fraught with risks for the average investor, from understanding drug pipelines to Food and Drug Administration (FDA) approvals, which can sometimes be mysteries even to insiders, to setbacks that can erase billions in value overnight.
Innovation at its finest is present in the sector, which is not surprising since everyone wants to be healthy. According to PwC research, the industry is teeming with mergers and acquisitions (M&A), where deal volumes grew by 65% in 2021.
Most recently notable billion-dollar hedge funds started actively participating in the sector.
Billionaires step up
Steven Cohen’s fund started recruiting healthcare professionals who analyze companies in that sector in which they plan on investing.
While UBS O’Connor, a $12 billion hedge fund, recently hired medical doctors to expand their healthcare-focused investments and Goldman Sachs Asset Management launched a new healthcare advisory council.
Pharma and biotech research saved many lives during the Pandemic, proving vital in times of humanity’s biggest test. Investments will keep flowing into the sector as the Biden administration also decided to speed up research on vital cures.
Inflationary pressure on health
The Healthcare sector is pretty much immune to inflationary pressures as diseases don’t have bull and bear markets. Between 1935 and 2022, medical care experienced an annual inflation rate of 4.66%.
With such a track record, the healthcare sector could be a great place to hide out during the market turmoil that is currently being experienced. Billionaires are hiring experts to help them design their portfolios since they understand the market dynamics.
Even Warren Buffett has a weak spot for pharma companies:
“Well, if we could buy a group of leading pharmaceutical companies at a below-market multiple, I think we’d do it in a second.”
Individual investors have numerous options to play the sector, from individual picks to exchange-traded funds (ETFs) to Closed-end funds (CEFs). As in other sectors, diversification is key, especially when investing in the more volatile biotech sector.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.