The industry group including the biotechnology companies, drug makers and health care providers has experienced a total advance of 7.3% in 2013 in the Standard & Poor’s 500 Index, the benchmark gauge of the biggest economy in the world. This makes this industry group the second best performer in the gauge after the energy companies. The amazing fact is that the drug makers, which are generally touted as a safe-haven play, are currently outperforming the market. This rally is based on some solid foundations, however, it cannot be expected that with this influx of cash, all the companies will have equal benefits. The range of stocks in this sector is pretty wide and therefore the investors have different risk and return dynamics altogether.
Many investors believe that the overall spending on the US healthcare sector will be getting to a higher level, in comparison with the economic growth of the country, in the next few years. The population will age and apart from that, the Affordable Care Act of President Barack Obama is expected to give the countrymen a better access to healthcare. By end of 2013, the overall healthcare spending will increase by 70% if the estimates of economists are taken into consideration. It is expected to become $4.8 trillion by 2021, in actual. Incidentally, this is around the total Gross Domestic Product of the country.
According to the Portfolio Manager of Invesco, Derek Taner, healthcare industry is seeing a lot of money flows in the recent times and hence, the market is also reacting accordingly. Taner added that the hospital companies will be benefitted the most with this surge. The managed care companies should also be helped because of the increase in spending; however, as these face restrictions on pricing the coverage and higher taxes, the new Act will put them in a challenging position.
Obama’s reelection in last November gave this sector a further boost as the uncertainty over implementation of the Affordable Care Act was erased. Incidentally, Mitt Romney, the candidate of Republicans stated that he would overturn this healthcare act in case; he was elected as the President.
For most of the last decade, drug making companies have not seen good highs. Many analysts used to consider these as defensive growth companies. However, it seems that these are now emerging from all the doldrums.