Over the past trio of years, the S&P 500 Index has outshone health care shares, but since the dawn of 2025, the tables have turned with health care stocks outperforming, despite suffering a modest loss. Until April 7 of this year, the S&P 500 has seen a 14% fall off, while health care stocks have managed to limit their losses to a mere 2%. The well-regarded Fidelity Select Health Care Portfolio (FSPHX), one of our top pick health funds and a member of the Kiplinger 25 – renowned no-load mutual funds, has fallen behind the sector’s index for this year.
Notwithstanding, in the course of the last year, this fund has outperformed 65% of its counterparts, even in the face of a 6.9% loss. Success stories have been noted in its investments in medical device firms, with the likes of Boston Scientific (BSX) seeing a progression in their shares. Equally performing firms from biotech sphere, such as Alnylam Pharmaceuticals (ALNY) have likewise shown advancements.
Despite these wins, some sectors in health care have struggled, managed care firms have distanced themselves from the victory lap. UnitedHealth Group (UNH) is one such example of a company that hasn’t relished in the market’s progress. The ambiguity surrounding government policies, with Medicare being a key topic, has cast a shadow of doubt over their performance.
Another inhibiting factor has been a spike in costs in 2024, propelled by the effects of inflation. Such firms found themselves spiraling into challenge as government Medicare Advantage reimbursements were insufficient to offset the impact. Preference swings towards those firms which showcase an uptick in demand for their merchandise and services, along with an augmenting free cash flow (the residual after deducting operational expenditures and investments made towards maintaining or scaling the venture).
Looking back, the health sector’s glowing performance can be viewed as a rebound from the post-election drawbacks experienced last year. The closing quarter of 2024 saw a 10% slump in health care stocks while the S&P 500 marked a modest ascent of 2.4%. The sentiment now points towards a broadening market, a trend which, if further perpetuated, would be favorable for the sector.
On the other hand, this market broadening forecast isn’t new and has come up in conversations before. But the health sector’s landscape isn’t what it was. It seems as if progress in innovative methods and processes has quietly advanced while the market was looking the other way. Unprofitable companies from the past have turned the corner and profitability is no longer elusive.
Catalyzed by unnoticed alterations, these changes can fuel a considerable impact on stock valuations. The health sector too may not be as it was previously perceived. This can trigger a tangible impact on stock prices, supported by the unnoticed evolution within the sector. This evolution has been largely overlooked by market participants.
Having assumed the role of manager since 2008, the fund has managed to deliver an impressive 12.5% annualized return. With this, the fund has not only outperformed its direct competitors in the health fund area but also managed to beat the results presented by the S&P 500.
However, while some losses have been experienced, they should not overshadow the notable achievements of medical companies that have transformed innovations into profitable operations. Progress, often tucked away quietly, has churned out companies that now yield returns.
Despite setbacks and challenges, the general atmosphere in the health sector emits optimism. The push towards innovation coupled with companies going from red to black is a potent combination that looks set to uplift stock prices.
Remaining vigilant to these changes and developing trends in the health care market could present potential opportunities for strategic investments. Tracing back the journey of the sector, it is clear that resilience, innovation, and foresight have yielded commendable returns.
While the road may have been tough, the hard times have played their part in strengthening the sector’s resolve and the outlook remains positive. The future for the health care stocks appears promising, not just for those at the forefront, but also for companies that once remained in the shadows.