--- title: "Healthcare sector offers structural growth opportunities globally; Regulatory clarity lifts valuations, pharma re-rating." sdDatePublished: "2026-08-12T16:12:00Z" source: "https://www.schroders.com/en-ca/ca/professional/insights/beyond-tech-concentration-why-healthcare-offers-structural-growth-opportunities/" topics: - name: "financial service" identifier: "medtop:20001370" - name: "healthcare industry" identifier: "medtop:20001354" - name: "economy, business and finance" identifier: "medtop:04000000" - name: "economy" identifier: "medtop:20000344" locations: - "United States" - "Japan" --- Healthcare sector offers structural growth opportunities globally; Regulatory clarity lifts valuations, pharma re-rating. Beyond tech concentration: why healthcare offers structural growth opportunities Beyond tech concentration: why healthcare offers structural growth opportunities Unloved healthcare presents compelling opportunities in terms of low current valuations and powerful demographic tailwinds. Market concentration remains extreme, with just five US tech megacaps comprising almost 20% of the MSCI ACWI global index*. And within the S&P500, the tech weighting is now at a multi-decade high (see chart, below). By contrast, the relative weight of healthcare hovers near record lows, as investors have treated the sector as a source of funds for high-momentum trades like AI and defence industrial stocks. Healthcare and Technology as % of S&P500 Source: Eikon Refinitiv, Schroders, 13 July 2026 But as regulatory headwinds clear and underlying earnings drivers re-emerge, healthcare is shifting from an unappreciated trade into one of the most compelling risk-reward setups in global equities. For equity and multi-asset investors concerned about over-concentrated portfolios, healthcare offers a rare combination of deeply discounted valuations, structural demographic tailwinds, and powerful diversification. The contrarian opportunity: a four-year lull at an inflection point Healthcare has underperformed broad equity markets for roughly four straight years. However, history suggests multi-year relative underperformance in high-quality defensive sectors rarely lasts forever, it creates the coiled spring for future outperformance. Severe multi-year lag: a combination of post-COVID normalisation, tight managed care rates (managed care refers to health insurers and healthcare plans that seek to control costs while coordinating patient care), and political rhetoric led to a multi-year period of negative fund flows. This in turn led to deep valuation compression relative to the broad market. The "unappreciated" multiples: healthcare historically trades at a premium to the market due to its high return on equity (ROE) and earnings stability. Today, it trades at one of its steepest relative discounts in over two decades. Timing the reconnection: history demonstrates that when the fundamental drivers of a sector (such as research and development progress, M&A activity or earnings growth) decouple from stock prices for too long, the eventual mean-reversion can be swift. The window to allocate is when the asset class is deeply unappreciated, not after the broad market has already rotated back into it. Demographic tailwinds and crucial portfolio diversification While short-term sentiment has depressed valuations, the underlying demand drivers have only strengthened. Accelerating demographic demand: unlike cyclical growth sectors, healthcare demand is anchored in an unavoidable global reality – a rapidly ageing population. As older demographics consume significantly more medical care, therapies, and devices, the sector benefits from an accelerating, non-cyclical demand baseline. Low correlation with tech: healthcare historically exhibits low return correlation to mega-cap technology. Healthcare's 52-week correlation to technology stands at just 0.19, demonstrating its power as a portfolio diversifier during tech pullbacks. Reallocating toward healthcare helps mitigate index concentration risk, providing defensive ballast and asymmetric downside protection if tech momentum stalls. Policy clarity and large-cap pharma re-rating Regulatory overhangs have cast a shadow over healthcare for some time, but this uncertainty is finally lifting. More benign regulatory climate: recent dialogues and agreements between major pharmaceutical companies and the US administration indicate a far more manageable policy environment than initially feared. Rational price negotiations: the outcomes of the IRA Medicare drug price negotiations have proved significantly less draconian than early rhetoric suggested. Valuation normalisation: with tariff and pricing fears receding, large-cap pharma and biotech have re-rated back toward their 10-year relative valuation averages, restoring baseline investability to the mega-caps. A catalysed biotech pipeline and life science tools The removal of regulatory uncertainty allows biopharma to deploy capital where it belongs: clinical trials and manufacturing infrastructure. The 2030 patent cliff: large-cap pharmaceutical companies face substantial product patent expirations, approximately $400 billion in loss-of-exclusivity revenue risk over the next eight years. To replace expiring revenue streams, big pharma must acquire or license robust, late-stage pipelines. Surging M&A and trial success: biotech is benefiting from a strong ratio of trial successes and a sharp pickup in deal activity. Improved funding conditions are reigniting clinical development schedules. M&A deal value in pharma biotech has reached roughly $100 billion so far this year, while in the second quarter of 2026 biotech funding surged 86% year-on-year. The tools beneficiary: increased capital deployment into new clinical trials and manufacturing plants directly benefits life sciences tools and services providers, which supply the essential equipment, reagents, and contract research for biopharma expansion. Early in the cycle: crucially, public biotech valuations remain disciplined; we have yet to see the surge in speculative IPO activity that typically signals an over-extended bull market. Managed care and technology-enabled provider solutions The health insurance sector has navigated severe headwinds, including a combination of tight Medicare Advantage rate policies under the Biden administration and internal cost management challenges. However, a turnaround is underway: Margin and EPS recovery: Insurance companies have instituted operational recovery plans. As these plans execute alongside a more accommodating rate backdrop, earnings per share (EPS) are poised for a steady rebound. Bending the cost curve: the elevated medical costs confronting health insurers reinforce an urgent structural demand: healthcare providers must adopt technology-enabled solutions to improve efficiency and reduce delivery costs. Companies providing these tech-driven provider solutions stand to benefit directly as health plans seek cost containment. * Data as at 31 July 2026. Source: LSEG Datastream, Schroders. Visit our preference center, where you can choose which Schroders Insights you would like to receive The views and opinions contained herein are those of Schroders’ investment teams and or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. 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