Healthcare stocks have significantly lagged the broader market over the past year, leading some investors to question their future. Despite strong tailwinds from an ageing population in developed economies and continuous innovation, political rhetoric has recently overshadowed the sector’s generally positive fundamentals.

Healthcare remains a compelling sector for investment due to its resilience and essential nature. Regardless of economic conditions, demand for healthcare services remains steady, driven by the need to address illnesses, improve quality of life, and manage chronic conditions.

This inherent stability positions healthcare as a defensive sector, often weathering economic downturns better than others. Moreover, ageing populations in developed countries and increasing access to healthcare in emerging markets are expanding demand for medical services, pharmaceuticals, and healthcare technologies, creating a strong foundation for long-term growth.

Another factor bolstering the healthcare sector’s attractiveness is its innovation-driven nature. Advances in biotechnology, medical devices, and digital health are transforming the industry, creating opportunities for companies to disrupt traditional healthcare models and address unmet medical needs.

Breakthroughs in personalised medicine, gene editing, and artificial intelligence are driving significant improvements in patient outcomes while offering high-growth potential for investors.

Companies at the forefront of these innovations often enjoy strong pricing power, intellectual property protections, and lucrative market opportunities.

For example, GLP-1 companies such as Eli Lilly, which develop therapies like semaglutide and liraglutide for diabetes and obesity, have experienced significant revenue growth due to surging global demand for these treatments.

These drugs not only address chronic health conditions but also tap into the broader weight management market, boosting sales. The ongoing expansion of indications and strong patient adherence further solidify their positive revenue trajectory.

In the US, the healthcare sector faces both potential opportunities and challenges under president-elect Donald Trump’s administration. With Republicans securing control of the Senate and House, Trump’s policy priorities could significantly impact the biopharma industry.

On the positive side, a potential reduction in Federal Trade Commission scrutiny on mergers and acquisitions may facilitate pipeline expansions for cash-rich firms.

Trump’s efforts to repeal or alter Medicare negotiation provisions in the Inflation Reduction Act could also reduce pricing pressures on the industry.

However, Trump’s nomination of Robert F. Kennedy Jr to lead the Department of Health and Human Services or the Food and Drug Administration introduces uncertainty.

Potential outcomes include White House influence over drug approval decisions, possibly reducing approvals for certain drug types – particularly vaccines – and higher FDA staff turnover, leading to significant application backlogs.

Additionally, Trump’s focus on repealing key IRA provisions, while challenging to fully achieve, could disrupt the industry’s regulatory landscape.

News of RFK Jr’s appointment has weighed heavily on healthcare stocks, particularly biopharma companies. Since his nomination in late November, the healthcare sector has declined approximately 6 per cent, underperforming the S&P 500 Index by over 400 basis points.

RFK Jr’s controversial stance on healthcare policy has driven healthcare valuations to their lowest discount relative to the broader market in nearly 16 years.

Despite US policy uncertainty, long-term trends remain favourable for the healthcare sector. Rising demand from an ageing global population, consistent product innovation, and economically resilient revenues make the recent sell-off an attractive opportunity for patient investors.

For those with a long-term perspective, healthcare stocks could indeed be this year’s Christmas present.

• Bryan Dooley, CFA, is the chief investment officer at LOM Asset Management Ltd in Bermuda. Please contact LOM at +1 441-292-5000 or visit www.lom.com for further information. This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. Readers should consult with their brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority.