Healthcare's persistent underperformance over the past two years has been a source of concern for investors, with political uncertainty in the United States, rising interest rates, and the surge in capital towards AI and technology stocks being key factors. However, beneath the headline weakness, the healthcare sector's fundamentals remain robust across multiple sub-sectors. The sector trades at a significant discount to the broader market, presenting a compelling entry point for investors. Political headwinds, such as the US drug-pricing agreement under the Trump administration, have largely been resolved, removing a key overhang that had deterred new capital. Biopharma mergers and acquisitions (M&A) activity is accelerating, and innovation in medtech is creating new blockbuster markets with durable growth profiles. Artificial intelligence (AI) is emerging as a cost and efficiency lever across drug development, clinical trials, and surgical systems, rather than a disruptive threat to the sector. The healthcare sector's undervaluation and under-ownership present an opportunity for wealth allocators to re-engage with the sector. With healthcare equities trading at their steepest discount to the broader market in over a decade, Bellevue Asset Management used a recent Hubbis roundtable in Hong Kong to make the case for re-engaging with the sector. Drawing on data from its May 2026 roadshow, the Swiss specialist manager outlined why depressed sentiment, robust fundamentals, and an unmatched innovation pipeline may be setting the stage for a meaningful rerating. The MSCI World Healthcare Index trades at roughly 17 times next-12-month earnings, compared with approximately 21 times for the S&P 500. On a relative basis, healthcare's price-to-earnings (P/E) ratio stands at 0.82 times the broader market, well below the 10-year average of 0.90. This undervaluation presents a compelling opportunity for investors to build healthcare exposure at attractive levels. Innovation is the key to the healthcare sector's long-term growth. In cardiovascular medicine, lipoprotein(a) (Lp(a)) represents one of the largest untapped opportunities. Several companies, including Novartis and Amgen, have candidates in late-stage trials, with Phase 3 data expected in the course of 2026. In medtech, robotic surgery continues its structural advance, with Intuitive Surgical's Da Vinci 5 system incorporating AI-driven features such as simulated surgical training and tissue pressure sensing. The broader medtech landscape offers significant market expansion, with the continuous glucose monitoring market projected to grow from USD11.7 billion in 2024 to USD21.3 billion by 2029, and soft-tissue surgical robotics expected to more than double from USD8.7 billion to USD19.1 billion over the same period. AI is emerging as a cost and efficiency lever across drug development, clinical trials, and surgical systems, rather than a disruptive threat to the sector. In pharma and biotech, AI is being deployed to accelerate drug development, improve patient selection for clinical trials, and predict toxicity profiles earlier in the process, with estimates suggesting potential savings of USD70 billion in drug development costs by 2028 and 40 to 70 percent reductions in preclinical timelines. For health insurance companies, AI enables automation of invoice processing and contract management at scale. In medtech, heavy regulatory requirements around clinical data and device approvals create natural barriers that protect hardware-based businesses from software disruption. The healthcare sector's underperformance has been a persistent theme for the past two years, driven by a combination of political uncertainty in the United States, rising interest rates, and the gravitational pull of capital towards AI and technology stocks. However, beneath the headline weakness, the healthcare sector's fundamentals remain robust across multiple sub-sectors. The sector trades at a significant discount to the broader market, presenting a compelling entry point for investors. In my opinion, the healthcare sector's undervaluation and under-ownership present a unique opportunity for wealth allocators to re-engage with the sector. With healthcare equities trading at their steepest discount to the broader market in over a decade, the current dislocation represents a window that disciplined allocators would do well not to ignore. The sector's defensive qualities and innovation-driven growth make it an increasingly logical complement to concentrated technology positions. Healthcare remains structurally underweight in most portfolios, even as the sector's defensive qualities and innovation-driven growth make it an increasingly logical complement to concentrated technology positions. As one multi-family office representative at the event put it: 'Healthcare is one of the best sectors for our generation because of the domain expertise required.' In my view, the healthcare sector's undervaluation and under-ownership present a unique opportunity for wealth allocators to re-engage with the sector. With healthcare equities trading at their steepest discount to the broader market in over a decade, the current dislocation represents a window that disciplined allocators would do well not to ignore.
