The pandemic is over, and with it, the exceptional boom for successful COVID-19 vaccine manufacturers like Biontech. Recently, there have even been significant declines in vaccine, pharmaceutical, and healthcare stocks in general. Following the COVID-19 peak, a period of normalization has begun.

Why is the healthcare sector considered promising even still? Health is the most valuable asset for people, and with an aging population and increasing prosperity, the healthcare sector is a genuine long-term growth market. In addition, healthcare stocks are currently relatively moderately valued in a long-term perspective. Furthermore, healthcare stocks, compared to tech stocks, for example, represent a more defensive investment.

The profitability of investments in the healthcare sector is evident in its long-term performance. From September 2008 to September 2023, the MSCI Healthcare Index generated a return of 462%, while the MSCI World delivered a return of 350% over the same period. The MSCI All Country World performed even worse, with a return of 325%.

Both the volatility and the so-called maximum drawdowns of the healthcare sector are consistently lower than those of the overall stock market. This emphasizes the defensive nature of the sector.

The global healthcare market is primarily dominated by the United States, with approximately 72% of the MSCI World Healthcare comprised of US companies. The largest sub-sectors are pharmaceuticals, accounting for 41.8%, followed by healthcare equipment at 14.8%, and biotechnology at 14.6%.

The largest company in the MSCI World Healthcare, based on market capitalization, is the US insurance conglomerate United Health, specializing in health insurance, with a 6.7% share in the index. However, the Danish company Novo Nordisk, with a 4.3% share, is now the fourth-largest company in the index.

"The global pharmaceutical market has been growing steadily since 2001 and has more than tripled in size within twenty years," says Luba Schönig, co-founder of Umushroom. "In 2021, the market reached a volume of $1.29 trillion. The main drivers are an aging global population, diseases of civilization, and disease outbreaks such as COVID-19."

The United States accounts for approximately 43% of the total revenue, making it the most important sales market, followed by China at 7.6%, Japan at 4.5%, and Germany at 4%. "This partially explains why four of the five largest pharmaceutical companies by market capitalization are headquartered in the United States, including Eli Lilly & Co., Johnson & Johnson, Merck & Co., and Abbvie," explains Schönig. In Europe, the Danish company Novo Nordisk holds a leading position on a global scale. "It is interesting that Novo Nordisk covers over 50% of the global demand for insulin, and more than 34 million people use their diabetes products."

Pharmaceutical stocks have the potential to be a growth-enhancing component in a portfolio. Many pharmaceutical stocks have demonstrated stable performance even in the volatile environment of recent years. "In this regard, we are particularly keeping an eye on companies like Eli Lilly & Co., Johnson & Johnson, Novo Nordisk, Merck & Co., and Abbvie," Schönig explains. "Eli Lilly & Co., a company focusing on diabetes, oncology, immunology, and neuroscience, has a one-year performance of 87.5% and a five-year performance of 464%. Johnson & Johnson has shown solid performance over five years, at 17.4%. Novo Nordisk, specializing in chronic diseases, exhibits a strong one-year performance at 71% and a five-year performance of 341%."

With a P/E ratio of 45.4 and stable business development, Novo Nordisk stands out. Merck & Co. has also demonstrated stability with a five-year performance of 64.6%. "Abbvie, which focuses on chronic diseases, achieved a one-year performance of 5.4% and a five-year performance of 59.9%." With a P/E ratio of 30.6 and a 12.5% price potential, Abbvie can withstand volatility.

Overall, the healthcare sector is indeed a growth market. However, it regularly comes under pressure when there are efforts in the United States to contain healthcare costs. These measures are usually temporary in nature.

In this context, it definitely makes sense for investors to diversify their investments in the healthcare growth market through equity funds. This naturally carries the risk of general setbacks in the stock market as a whole or within the sector, as seen over the past year. However, long-term involvement in the healthcare growth market should prove to be worthwhile.

For investors, there are a variety of good active funds and passive ETFs available. For example, the Blackrock World Healthscience Fund, rated with five stars by Morningstar, has achieved an annual return of 8.2% over five years and 11.5% over ten years. The largest positions in this €12.3 billion fund, which is broadly diversified, include Eli Lilly, United Health, Novo Nordisk, Merck & Co., and AstraZeneca.

Despite a relatively high expense ratio of 2.40% per year, the Janus Henderson Global Life Sciences Fund, managed by industry veteran Andy Acker, has delivered a return of 7.6% per year over five years and 11.7% per year over ten years. The focus of this €3.1 billion fund is on innovative healthcare companies, with top positions in United Health, Eli Lilly, AstraZeneca, Novo Nordisk, and Sanofi.

However, passive ETFs tracking key healthcare indices also offer long-term appeal. Several providers have introduced products based on the globally invested and market capitalization-weighted MSCI World Healthcare Index. For example, Lyxor's ETF tracking this index has delivered an annual performance of 8.7% over five years and 10.8% over ten years. Xtrackers' corresponding ETF has outperformed slightly over five years with an annual return of 8.9% and boasts a slightly lower expense ratio of 25 basis points per year.

The iShares ETF, with assets totaling 2 billion euros, focuses solely on US healthcare stocks within the S&P 500 Healthcare Sector. Over the past three years, it has posted an annual performance of 11.8%, and over the last five years, it has achieved 9.9% annually. Moreover, this product boasts a very low expense ratio of 15 basis points per year.

In summary, healthcare funds appear promising for the years ahead. Healthcare remains a growth market with increasing expenditures, which benefits healthcare stocks.