Health Care Sector

One of the ten Global Industry Classification Standard (GICS) sectors, health care consists of a category of stocks relating to medical and health care services and goods. The health care sector includes hospitals, hospital management firms, plastic surgery and medical spas, biotechnology firms, medical research institutes, and an enormous variety of medical product manufacturers.

One of the ten Global Industry Classification Standard (GICS) sectors, health care consists of a category of stocks relating to medical and health care services and goods. The health care sector includes hospitals, hospital management firms, plastic surgery and medical spas, biotechnology firms, medical research institutes, and an enormous variety of medical product manufacturers.

Because the products and services in the health care sector are essential, some stocks in this area tend to be very stable. Even during contractions in the economy, people still need medical care, medicine, and medical products. With this constant level of demand, this sector tends to be less sensitive to business cycles than almost any other sector. However, because a portion of this sector caters to elective procedures and products, some businesses in this sector can experience more volatility and act more responsively to market trends. The rising popularity of plastic surgery and nonessential medical products and services are slowly transforming the sector from one that was historically very steady to one that, in time, may become increasingly volatile.

Composition

The health care sector is comprised of two main industry groups. One consists of companies that manufacture health care equipment and supplies or provide health care related services. These may include distributors of health care products, providers of basic health care services, and health care facilities and organizations. The second group consists of companies that focus on research, development, production and marketing of pharmaceuticals and biotechnology products. In other words, the health care sector broadly divides into R&D and practical application.

As a result, investing in health care requires a multifaceted approach.  A unique set of motivations and considerations drives each sub-section of this sector. Some parts of the industry benefit from an aging population, wide spread health problems (like obesity, cancer, etc.), and a focus on elective medical procedures. However, those same sections can suffer from regulatory changes to the health care industry, changes in insurance policies, and shifting focuses in health care priorities.

Another way of analyzing this sector is in terms of necessary and voluntary medical products and services. While part of the health care industry focuses on identifying and treating illness and injury and remains very stable, another part focuses on vanity and tends to behave more like the consumer discretionary sector. Plastic surgery, medical weight loss products, and sports medicine facilities and products tend to fall into this category. While these products and services can benefit the individual consumer and help to prevent later health care concerns, these items are not necessities and tend to fluctuate depending on the performance of the economy.

Investing in the Health Care sector

Investing in health care stocks can provide generous returns, but given the complexity and often-contradictory nature of this sector, it can also be tedious and difficult for the novice investor. The health care sector is enormous, and there are companies of many sizes in which to invest. However, purchasing individual stocks in this sector can be quite daunting. As a result, many investors prefer to use mutual funds or exchange-traded funds (ETFs) that focus all or a portion of their portfolio on the health care sector. Not only do such funds help investors to find better investments than they might be able to on their own, they can also help to offset the volatility of investing in this complicated sector. Those who insist on investing in individual stocks in the health care sector should be sure to do thorough research, pay close attention to the performance of the stocks, and seek guidance from a financial adviser.