Healthcare investing: silver linings and cutting edges
Why we believe investing in healthcare – with an ageing demographic and rapidly evolving landscape – can provide long-term tailwinds.
20th February 2025 08:55
by Jason Akus from abrdn
The healthcare sector is often viewed as a complex and ever-evolving landscape, posing challenges for investors seeking long-term growth.
However, two fundamental drivers are converging to create an environment ripe for outperformance: an ageing population and continuous medical innovation. We explore how these factors are propelling the healthcare industry forward and why actively managed closed-end funds (CEFs) offer a compelling option to navigate this dynamic sector.
Ageing demographic, rising demand
The world's population is ageing at an unprecedented rate, with the number of individuals aged 65 and above projected to reach 1.6 billion by 2050.1 This demographic shift translates into a burgeoning demand for healthcare services. As individuals age, they are more likely to experience chronic conditions and require preventative care, medication, and various medical procedures. This surge in demand is expected to fuel significant growth in the healthcare sector over the coming decades.
Relentless innovation
The intersection of healthcare and technology, we believe, presents a myriad of opportunities for growth and innovation. The use of artificial intelligence (AI) in healthcare has become increasingly popular. AI can be used for various healthcare purposes such as detecting, diagnosing, and treating diseases. It includes technologies such as 3D printing, algorithms, virtual reality, and machine learning – to name a few. AI is being used in multiple healthcare domains, including drug discovery, workflow enhancement, and diagnostic support, making it a significant area of life sciences.
Cutting through complexity
While the rise in healthcare demand is a given, the continuous stream of medical innovation unlocks this sector's full potential for investors. Advancements in areas like genomics, personalized medicine, telemedicine, and artificial intelligence (AI) are revolutionizing how diseases are diagnosed, treated, and managed. These advancements are leading to more effective therapies, improved patient outcomes, and even preventative measures that can help people live longer healthier lives.
These combined forces – an ageing population and relentless innovation – position the healthcare sector for robust long-term growth. However, navigating this complex space effectively may be challenging for investors.
Why active management shines in healthcare
While passive indexing can offer broad market exposure, it may not be the optimal strategy for the healthcare sector for several reasons:
Rapidly evolving landscape
The healthcare industry constantly evolves, with new technologies and therapies emerging regularly. Passive funds, which are tethered to specific indexes, may struggle to adapt to these changes and capture the full potential of emerging opportunities.
Identifying disruptive innovation
Not all innovations are created equal. Actively managed CEFs, with their dedicated teams of healthcare specialists, can analyze companies, assess their research and development pipelines, and identify those with the potential to be disruptive leaders in their respective fields.
Separating hype from reality
The healthcare industry is not without its fair share of hype and speculation. Actively managed CEFs can leverage their expertise to distinguish promising ventures with sound science and strong commercial potential from those that may not live up to their initial buzz.
Unlocking CEF advantages
Beyond active management, CEFs offer unique advantages in the healthcare sector, such as the ability to use leverage strategically to amplify returns and generate higher potential income through regular distributions.
Final thoughts
While the healthcare sector is undoubtedly complex, the confluence of an aging population and continuous medical innovation, especially given the current uncertain macro-environment, paints a compelling picture for long-term growth. Actively managed CEFs, with their structural advantages, are well-positioned to help investors navigate this dynamic landscape and capture the full potential of this exciting sector.
Jason Akus is head of healthcare investments at abrdn.
ii is an abrdn business.
abrdn is a global investment company that helps customers plan, save and invest for their future
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