Important security note: Warning of attempted fraud in the name of DWS
We have detected that fraudulent individuals are misusing the "DWS" trademark and the names of DWS employees on the internet and social media. These fraudsters are operating fake websites, Facebook pages, and WhatsApp groups. Please be aware that DWS does not have any Facebook Ambassador profiles or WhatsApp chats. If you receive any unexpected calls, messages, or emails claiming to be from DWS, exercise caution and do not make any payments or disclose personal information. We encourage you to report any suspicious activity to info@dws.com, including any relevant documents and the original fraudulent email. Additionally, if you believe you have been a victim of fraud, please notify your local authorities and take steps to protect yourself.
31/10/2024
Investing in the healthcare (HC) sector in a U.S. presidential election year is normally a no-go. To understand why, one first has to know that U.S. companies account for 71% of the MSCI World Healthcare Index market value. And that the U.S. spends more on healthcare per capita, as a percentage of GDP and in absolute terms, than any other country.[1] The U.S. elections are therefore very important for this sector, and often do not bring it good news. The question of how much the sector should contribute to financing new government plans is often at stake. Although the industry is trying to defend itself – it lobbies like no other in the U.S[2] – there are limits. The fact that the sector’s average operating margin has fallen from over 20% to 14% over the past 30 years, while the S&P 500's operating margin has risen from 12% to 14% over the same period, is likely to be partly due to this (in Europe the margin has fallen from 25% to 16% over the past 20 years).[3]
However, we think the elections this year will result in less harm for the sector than usual for two reasons: 1. The Democrats, the party that is more critical of the pharmaceutical industry, are already in the White House. 2. Healthcare policy is not the focus of this election campaign for either party.
A number of factors make HC attractive: 1. Innovation. The potential for new products to boost share prices was recently demonstrated by the introduction of anti-obesity drugs, which resulted in a manyfold increase in the share prices of both market leaders.[4] While that is certainly extraordinary, there are many areas in which markets worth billions of dollars could rapidly develop. For example in cancer, dementia and gene therapies. 2. In addition, AI could advance the sector in many ways, with productivity gains in the development of new drugs, reduced failure rates in clinical trials, and improved diagnostics and support for patient care. 3. The aging society suggests that HC spending will continue to grow disproportionately. 4. Corporate bond yields have been falling again for about two years, which should help smaller and younger companies in particular to raise funds more cheaply.
For shareholders, we believe the sector's combination of defensive qualities and growth potential is particularly appealing. But the former only applies to the sector as a whole. The sector’s constituents are subject to the same profit volatility as cyclical stocks.[5] Performance is also very heterogeneous: the S&P 500 HC gained 20% over the past 12 months, but the strongest HC stock gained 60%, while the weakest lost 40%.[6] This reinforces our conviction that stock selection is essential in healthcare. Success or failure at the company level can hinge on one drug.
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 10/9/24. *S&P500 EW is the equal-weight S&P500
As the chart shows, the U.S. HC sector has mostly performed similarly to the S&P 500. The discrepancy over the last 18 months is mainly due to the strength of the big U.S. tech stocks.[7] The picture is similar when it comes to valuations. The sector is trading at a slight discount to the overall market and below its historical relative valuation. However, it is trading at a slight premium to the equal-weight market.[8] In our opinion, this is also justified. The current economic cycle is difficult to grasp. We do not rule out a U.S. recession, and the goods industry is contracting. Then there are the serious geopolitical conflicts. That’s why the defensive qualities of healthcare are tempting, even if a major U.S. downturn is not yet visible. At the same time, we expect only low growth in developed markets in the medium term. Here, too, individual healthcare sectors are partly immune, as we expect them to enjoy structural growth. Noushin Irani, DWS Equity Sector Head Healthcare, currently prefers biotech stocks and the major pharmaceuticals.[9]
Source: OECD, as of 2022
Source: Statista. October 2024. Last figures for 2023, when the sector spent USD 740m on lobbying in the US. It has been one of the top three lobbyists since 2000 and has been top of the league since 2016.
Data for S&P 500, S&P 500 Healthcare, Stoxx 600 and Stoxx 600 Healthcare. Source: Bloomberg Finance L.P.; as of 10/9/24
Within five years, the share price of US company Eli Lilly has increased almost ninefold, while that of Danish company Novo Nordisk has increased almost fivefold. Source: Bloomberg L.P. As of: 10/9/24.
Many stocks in the sector have also seen rising debt levels recently, which has also contributed to higher volatility in earnings and share prices.
Due to better available data and its dominance, we often refer to the S&P 500 and the S&P 500 Healthcare in this context, but the opinions in the text refer to the global sector.
The equal-weight S&P 500 reduces the distortions caused by the heavyweights in technology and media stocks.
The equal-weight S&P 500 valuation is less distorted by single dominant stocks than the market-cap-weighted S&P 500 valuation.
Within the MSCI World Healthcare, pharmaceuticals account for 42% of the index market value, and biotechnology for 14%. Source: MSCI, as of 10/9/24
DWS does not intend to promote a particular outcome to the U.S. election due to take place in November. Readers should, of course, vote in the election as they personally see fit. This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Source: DWS Investment GmbH.
DWS is the brand name of DWS Group GmbH & Co. KGaA and its subsidiaries under which they do business. The DWS legal entities offering products or services are specified in the relevant documentation. DWS, through DWS Group GmbH & Co. KGaA, its affiliated companies and its officers and employees (collectively “DWS”) are communicating this document in good faith and on the following basis.
This document is for information/discussion purposes only and does not constitute an offer, recommendation or solicitation to conclude a transaction and should not be treated as investment advice.
This document is intended to be a marketing communication, not a financial analysis. Accordingly, it may not comply with legal obligations requiring the impartiality of financial analysis or prohibiting trading prior to the publication of a financial analysis.
This document contains forward looking statements. Forward looking statements include, but are not limited to assumptions, estimates, projections, opinions, models and hypothetical performance analysis. No representation or warranty is made by DWS as to the reasonableness or completeness of such forward looking statements. Past performance is no guarantee of future results.
The information contained in this document is obtained from sources believed to be reliable. DWS does not guarantee the accuracy, completeness or fairness of such information. All third party data is copyrighted by and proprietary to the provider. DWS has no obligation to update, modify or amend this document or to otherwise notify the recipient in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Investments are subject to various risks. Detailed information on risks is contained in the relevant offering documents.
No liability for any error or omission is accepted by DWS. Opinions and estimates may be changed without notice and involve a number of assumptions which may not prove valid.
DWS does not give taxation or legal advice.
This document may not be reproduced or circulated without DWS’s written authority.
This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, including the United States, where such distribution, publication, availability or use would be contrary to law or regulation or which would subject DWS to any registration or licensing requirement within such jurisdiction not currently met within such jurisdiction. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.
© 2024 DWS Investment GmbH
Issued in the UK by DWS Investments UK Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
© 2024 DWS Investments UK Limited
In Hong Kong, this document is issued by DWS Investments Hong Kong Limited. The content of this document has not been reviewed by the Securities and Futures Commission.
© 2024 DWS Investments Hong Kong Limited
In Singapore, this document is issued by DWS Investments Singapore Limited. The content of this document has not been reviewed by the Monetary Authority of Singapore.
© 2024 DWS Investments Singapore Limited
In Australia, this document is issued by DWS Investments Australia Limited (ABN: 52 074 599 401) (AFSL 499640). The content of this document has not been reviewed by the Australian Securities and Investments Commission.
© 2024 DWS Investments Australia Limited
For institutional / professional investors in Taiwan:
This document is distributed to professional investors only and not others. Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
Financial Professional
Individual Investor
Institutional Investor
The content of this website (the “Website”) is intended exclusively for persons who are resident in Denmark or who access this website from Denmark.
U.S. Persons are not eligible to invest in shares of such investment funds which are stated on the following websites. By clicking on “I accept”, I confirm that I am not a citizen of the United States, that neither my place of residence nor place of business is in the United States and especially I am not a person that is a “U.S. Person” as such term is defined under Regulation S of the U.S. Securities Act of 1933.
The use of this Website is subject to (i) Danish law and (ii) the Terms of Use of this Website. Please read the Terms of Use carefully.
By entering this Website, you agree to accept the Terms of Use of this Website.
We use cookies and similar technologies that are essential to operate our websites. With your consent, we will use cookies for performance analysis of our websites. This enables us to detect and fix errors and usability issues as soon as possible and to constantly improve our website. Furthermore we use marketing cookies to measure the success of our marketing measures and personalize our contents to your needs as precisely as possible, potentially also outside of our websites. In the settings you can find detailed information on the different types of cookies and object to the use of cookies. As an asset manager, the security of your data is highest priority to us. You can find further information in our privacy notice.
