Healthcare stocks, including biotechnology and other disruptive fare, were all the rage in the early days of the coronavirus pandemic. However, that scenario rapidly changed in 2021.
That gloominess is carrying over to 2022, and with interest rates rising, innovative healthcare equities — regardless of underlying industry — are out of favor due to retrenchment in growth stocks. While it’s hard to be enthusiastic about this class right now, the Goldman Sachs Future Health Care Equity ETF (GDOC) is an example of a unique healthcare exchange traded fund that could reward patient investors.
Focus on the coronavirus pandemic may be waning, but the global health crisis put a spotlight on the intersection of healthcare and technology. Related to that is the point that there’s a long runway for that intersection to growth, potentially highlighting opportunity with GDOC.
“While the healthcare sector has been slow to embrace technological change, the momentum is beginning to shift. This should lead to progress in areas such as precision surgical tools and minimally invasive procedures, as well as the growing trend of wearable tech and connected devices such as glucose monitoring systems,” according to BlackRock research.
The actively managed GDOC emphasizes disruption and innovation in health and does so by focusing on concepts such as digital healthcare, genomics, and treatment of rare diseases — each of which are fast-growing industries that have been pounded amid the 2022 growth stock slide.
Growth stock weakness and regulatory fears are among the factors pressuring some GDOC components, but those dark clouds could part over time.
“The fear of regulatory action and potential for it to dent profit margins is one reason healthcare stocks are available at a discount to the market,” added BlackRock. “Biotech stocks especially have struggled over the past 12 months amid little progress in the clinical development of new treatments (COVID-19 successes aside).”
Today, the healthcare sector sports a valuation discount relative to the broader market, and biotech stocks are less expensive than the healthcare sector — a relevant point to GDOC investors because the fund has ample biotech exposure.
Over the long haul, the healthcare sector could be “supported by the continuation of secular growth drivers. Aging societies mean that demand for healthcare products and services is poised to grow for decades to come,” concluded BlackRock.
In addition to a variety of growth holdings, GDOC offsets some of that risk with exposure to high-quality, blue chip pharmaceuticals stocks. For example, Eli Lilly (NYSE:LLY) and AstraZeneca (NASDAQ:AZN) are GDOC’s top two holdings, combining for 11.1% of the fund’s weight.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.