Healthcare Sector

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This sector consists of multiple businesses that provide medical services, drugs of manufacture medical equipment, insurance for medical or healthcare facilities. As you know this sector is very large in terms of the wealth they accumulate.

There are different industries within the Healthcare Sector

  • Drugs – Drug manufacturers can further be broken down into biotechnology firms, major pharmaceuticals firms, and makers of generic drugs. Examples of major pharmaceutical firms include Novartis AG and GlaxoSmithKline PLC.
  • Medical Equipment – Medical equipment makers range from firms that manufacture standard, familiar products—scalpels, forceps, bandages, and gloves—to those that conduct cutting-edge research and produce expensive, hi-tech equipment, such as MRI machines and surgical robots. Medtronic PLC is an example of a medical equipment maker.
  • Managed Healthcare – Managed healthcare companies provide health insurance policies. The “Big Five” firms that dominate the industry are UnitedHealth Group Inc., Anthem Inc., Aetna Inc., Humana Inc., and Cigna Corp.
  • healthcare Facilities – Health care facilities firms operate hospitals, clinics, labs, psychiatric facilities, and nursing homes. Examples include Laboratory Corp. of America Holdings, which operates facilities that perform blood tests and other analysis, and HCA Healthcare Inc., which operates hospitals and other healthcare facilities in the U.S. and U.K.
Credit: Infographic explains the Health Care System for us

Understanding the Healthcare Sector

The healthcare sector is one of the largest and most complexes in the U.S. economy, accounting for close to a fifth of overall gross domestic product (GDP). The U.S. healthcare sector benefits from a strong system of medical research and development, in cooperation with the higher education system and the technology industry. The aging U.S. population and the advancing senescence of the Baby Boomer generation are driving ongoing strong demand in the healthcare sector.

Economically, healthcare markets are marked by a few distinct factors. Government intervention in healthcare markets and activities is pervasive, in part due to some of these economic factors. The demand for healthcare services highly prices inelastic. Consumers and producers face inherent uncertainties regarding needs, outcomes, and the costs of services. Patients, providers, and other industry players possess widely asymmetric information and principal-agent problems are ubiquitous. Major barriers to entry exist in the form of professional licensure, regulation, intellectual property protections, specialized expertise, research and development costs, and natural economies of scale. Consumption (or non-consumption) and production of medical services can involve significant externalities, particularly regarding the infectious disease. Transactions costs are high in both the provision of care and the coordination of care. 

This is one of the most popular stock sectors in the investment world. That’s because it tends to perform well regardless of what’s happening in the economy or the financial markets. Part of that is that demand for health care tends to remain constant regardless of what’s happening in the economy or the financial markets.

But an equally significant reason is that revenues in the sector have shown a very steady, long-term upswing. Because of the life-enhancing and even lifesaving capabilities the industry provides, public willingness to expand funding to the industry often seems unlimited.

The sector includes hospitals and other healthcare providers, as well as makers of specialty medical devices and equipment. It also includes drug companies and biotech companies. Much like the technology sector, this is an industry that produces steady improvements in technological capabilities, further increasing revenues to the industry.

As a sector, health care comes very close to being an all-weather investment. It does well in booming economies, recessions, stock market bubbles and crashes. However, with the latter, the healthcare sector can experience something of a sympathy decline with the general market.

Examples of healthcare sector funds include Vanguard Health Care ETF (VHT) and iShares Global Healthcare ETF (IXJ).

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