4 November 2026
In October 2026, global equities, as represented by the MSCI World Index, returned -0.8%, weighed down by selling in large technology and AI-linked companies. Healthcare, as represented by the MSCI World Healthcare Index, returned +9.8% over the same period1, outperforming the broader market and underscoring the sector's potential role as a defensive allocation and portfolio diversifier.
The healthcare sector continues to be shaped by a mix of defensive demand characteristics, scientific progress and an evolving macroeconomic and policy environment. Although demand for many healthcare products and services is relatively resilient across market cycles, developments in interest rates, regulation and public spending may affect different parts of the sector in different ways.
In the US, healthcare companies continue to face scrutiny arising from regulatory and public policy changes. Questions also remain around the Medicare and Medicaid reimbursement frameworks administered by the Centers for Medicare & Medicaid Services. While longstanding policies may evolve incrementally rather than change all at once, even gradual adjustments can have different consequences across insurers, hospitals, pharmaceutical companies and other healthcare providers. This dynamic requires deep healthcare, scientific and investment experience to help navigate and highlights the benefit of active management in healthcare investing.
The healthcare sector experienced modest volatility following the passage of the US Reconciliation Bill, also known as the One Big Beautiful Bill, in July 2025. The legislation provides for approximately USD 1.2 trillion in reductions to US government healthcare spending over 10 years, primarily affecting Medicaid and Affordable Care Act insurance programmes. As a result, companies with greater exposure to these programmes, including certain insurers and hospital operators, may face a more challenging operating environment.
At the same time, the legislation included a carve-out protecting rare and orphan drugs from potential price reductions under Medicare negotiations. This illustrates how the effects of healthcare policy can vary significantly across subsectors. Measures that create pressure in one area may offer greater policy visibility in another.
Healthcare affordability is also likely to remain a prominent issue. Discussion of proposals such as “Medicare for All” may intensify, although debate does not necessarily translate into enacted legislation. Investors should therefore distinguish between campaign rhetoric, proposed measures and policies that have completed the legislative process.
Beyond short-term policy developments, healthcare demand remains influenced by the need to manage serious and chronic diseases. Cardiovascular and neurological conditions, diabetes, cancer, metabolic syndrome, asthma and other immunological disorders continue to present substantial medical challenges.
In biopharmaceuticals, companies with differentiated product portfolios in disease areas where treatment demand is less sensitive to economic conditions may be comparatively resilient. However, their prospects still depend on factors such as clinical outcomes, regulatory approvals, reimbursement decisions, competition and the commercial adoption of new treatments.
Selected areas of healthcare equipment and supplies, as well as life-science tools and services, are also benefiting from continued research, capital expenditure and product-development activity. Fields such as electrophysiology and hypertension address underserved patient populations with significant unmet medical needs. The timing and commercial impact of these investments may nevertheless vary, and innovation does not guarantee commercial success.
Within healthcare providers and services, pharmaceutical wholesalers and specialty pharmacies may benefit from prescription-volume trends and changes to patient co-payment arrangements. These businesses perform important functions within the healthcare supply chain, but their operating conditions remain sensitive to reimbursement policy, pricing arrangements and healthcare utilisation.
By contrast, insurers and hospital operators with substantial exposure to Medicaid, Medicare or Affordable Care Act programmes may be more directly affected by changes in government funding and reimbursement. The impact will depend on the final implementation of policy measures and the ability of individual companies to adapt their business models.
The healthcare sector is not a single, uniform investment category. Interest rates and access to capital can affect financing and corporate activity, while government spending and reimbursement policy can alter the outlook for insurers, hospitals, drug developers and service providers in different ways. At the same time, demographic and medical needs continue to support research and innovation across a range of disease areas.
This reinforces the importance of taking a diversified, long-term perspective rather than relying on short-term political developments or individual scientific breakthroughs. Any assessment of the sector should consider company fundamentals, valuations, financial resilience, regulatory exposure and the ability to address unmet medical needs while contributing to more efficient healthcare delivery.
1 Source: Bloomberg, 30 October 2026. Past performance information presented are not indicative of future performance.
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