Investing in healthcare stocks
Learn the benefits and risks of investing in pharmaceuticals, biotech, health insurance and more.
The healthcare sector is large and complex. Australian investors must be wary of governmental regulations and political shifts before investing in healthcare stocks.
What are healthcare stocks?
Healthcare stocks belong to the healthcare sector of the stock market — one of 11 sectors defined by the Global Industry Classification Standard. Companies within the healthcare sector provide medical services, including insurance, medical equipment and pharmaceuticals.
The healthcare sector is large, with healthcare-related spending accounting for approximately 10% of Australia's GDP in 2018. The healthcare sector is also complex, given government and professional licensing regulations, research costs and the rapid evolution of the medical field.
What subcategories does it include?
The healthcare sector can be further divided into the following major industries:
- Healthcare facilities. These include hospitals, clinics, laboratories, mental health facilities and nursing homes.
- Health insurance. Companies responsible for providing and underwriting health insurance policies also belong to the healthcare sector.
- Medical equipment. Medical equipment providers design and manufacture equipment used across the sector, from CT scanners to surgical gloves.
- Pharmaceuticals. Biotech firms and major pharmaceutical firms work to research, develop and distribute generic and name-brand drugs.
How to invest in the healthcare sector
There are two ways to invest in the healthcare sector in Australia: individual stocks or exchange-traded funds (ETFs). Individual stocks offer targeted investment opportunities but have limited market exposure. Sector-tracking ETFs are more diverse and less risky than individual stocks but are accompanied by expense ratios.
Before you can invest, you’ll need a brokerage account in Australia. Here’s how the investment process works:
- Pick a platform. Online brokerages in Australia are plentiful, so conduct your own research to find the platform best suited to your investment goals.
- Open an account. If you opt for a web-based brokerage account, you can complete the application process online.
- Fund your account. Before you can purchase securities, fund your account with an external transfer.
- Select your securities. Search for stocks and ETFs by sector using your platform’s research tools.
- Place an order. Once you’ve found a security you’d like to purchase, indicate how many you’d like to buy and submit your order.
- Monitor your investments. Log in to your brokerage account to track your investments.
ASX healthcare stocks
There are many health stocks listed on the Australian Securities Exchange (ASX) including CSL, Fisher and Paykel, Sonic Healthcare and Ramsay Health Care.
The best-performing ASX health stocks so far in 2024 are LTR Pharma Limited (ASX: LTP), which is up 434.78%, and Mesoblast Limited (ASX: MSB), which is up 354.84%.1
What ETFs track the healthcare sector?
Popular ETFs in the healthcare sector include:
- ETFS S&P Biotech (CURE)
- iShares Global Healthcare (IXJ)
- WCM Quality Global Growth Fund (WCMQ)
- Vaneck Vectors Global Healthcare Leaders (HLTH)
How is the healthcare sector performing?
The graph below tracks the Health Care Select Sector SPDR Fund (XLV). Tracking ETF performance is one way to measure how the sector as a whole is doing.
Why invest in healthcare stocks?
Healthcare is a human necessity. This means the demand for healthcare services typically remains unchanged, regardless of how other industries rise and fall. Investing in well-established healthcare stocks can provide a cushion of security in an aggressive growth portfolio.
Healthcare stocks also offer Australian investors the opportunity to fund medical research. As the field continues to expand, investors can support research efforts seeking to cure disease.
What unique risks does the healthcare sector face?
The medical field is complicated, and if you don’t understand what a company does or how it operates, you may want to think twice before investing.
Government legislation is another major consideration for healthcare investors. Sweeping shifts in policy — the Affordable Care Act in the United States, for example — have the power to trigger significant volatility in this sector. And global drug approval authorities have the power to make or break fledgling pharmaceutical companies. If you choose to invest in this sector, keep an eye on political shifts and regulatory changes.
Compare stock trading platforms
To purchase stocks or ETFs, you'll need a brokerage account in Australia. Use this table to compare your options and find the right fit.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Bottom line
The healthcare sector offers the opportunity for profit but carries its own unique set of risks. Whether or not this sector belongs in your portfolio depends on your risk tolerance and investment goals. Explore your brokerage account options across multiple trading platforms for the account best suited to your needs.
Frequently asked questions
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
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