Why the Outlook for Healthcare Stocks Just Got Brighter

Amid optimism for a COVID-19 vaccine and greater clarity around the U.S. election, Dr. Erin Xie, portfolio manager of the BlackRock Health Sciences Opportunities Fund, discusses two timely reasons to consider healthcare stocks.

The healthcare sector has demonstrated its prized performance resilience in 2020 - a year most of us are eager to forget but one that has revealed new reasons to stick with healthcare stocks.

Newfound policy stability

We entered 2020 with prospects for sweeping healthcare policy and drug pricing reform casting a cloud over the sector. Fast forward 12 months and the policy backdrop is looking fairly benign for healthcare stocks.

The full results of the U.S. elections are not yet set in stone, but with a likely Republican-controlled Senate and smaller Democrat majority in the House, we view dramatic changes in health policy as unlikely. President-elect Biden will not have the votes to press for a more progressive agenda, and his key objective to expand Affordable Care Act coverage would likely face a similar fate. The incoming president’s position on drug pricing reform is also less severe than that of President Trump.

Rather than any large-scale transformation of the healthcare system, we see potential for only incremental changes – those achievable through a combination of executive orders and Medicaid/Medicare authority. Add to this the immediate need to focus on pandemic response, and that leaves little political capital to take on complex health policy changes, particularly as hospitals confront COVID-19 challenges and vaccine development and dissemination remain a priority. On balance, a largely stable policy picture should be a positive for investors in the healthcare sector.