Investors find the healthcare sector at a potential inflection point. After years of delivering steady and attractive growth driven by several long-term trends, cutting-edge innovation, and favourable market conditions, the industry has recently struggled with poor investor sentiment, weighed down by political uncertainty.
Yet according to the specialist team behind Polar Capital Global Healthcare Trust (PCGH), the fortune of the sector may be about to turn. Their trust presents an attractive opportunity for long-term investors willing to look beyond near-term noise.
Despite recent softness in the healthcare sector, deft stock selection and a structure that allows the managers to invest across the full spectrum of healthcare companies means PCGH’s net asset value has grown over 80% since 2017, when the Trust was reconstructed as Polar Capital Global Healthcare Trust plc. The sector is now trading at very compelling valuations, well below recent highs.
PCGH benefits from one of the most experienced healthcare investment teams in the industry. The broader team comprises eight dedicated healthcare specialists with nearly 150 years of combined industry experience, managing £3.5 billion in team assets as of 30th September 2025, invested across all healthcare subsectors and market caps.
Why Healthcare?
First, we must address the question of why investors should consider the Healthcare sector. The Healthcare sector presents a unique opportunity for investors. It’s one of the few sectors that combines defensive characteristics with substantial growth potential, driven by strong demand dynamics and near constant innovation.
Underpinning the favourable characteristics of the sector, global demographics provide a significant tailwind for the industry. The US senior population is expected to climb from approximately 55 million in 2020 to around 83 million by 2050. There is a similar trajectory in Europe which will likely also be observed in many emerging markets in years to come. Aging populations naturally translate to higher demand for treatments, diagnostics, hospital services, and long-term care.
The sector is supported by innovation that is accelerating with the introduction of AI. Breakthroughs in gene editing, immuno-oncology, precision medicine, and AI-driven diagnostics are transforming how diseases are treated and prevented.
Clinical studies are exploring how newly developed drugs can manage cardiovascular risk, kidney disease, and even Alzheimer’s, while weight-loss drugs continue to capture industry and investor interest.
The explosion of weight loss drugs from companies like Novo Nordisk and Eli Lilly has reshaped the pharmaceutical landscape, creating a multi-billion-dollar global market almost overnight. Both companies were held by the Trust as the market developed. Eli Lilly was the top holding as of 30th September 2025.
Beyond weight loss therapies, there is a strong pipeline of new drugs and innovations that will provide future opportunities for the trust and its investors.
The long-term performance of the sector reflects the innovation it produces. Global Healthcare is projected to deliver earnings growth of 7.3% annually between 2007-2026 – comfortably ahead of the MSCI All Country World Index’s 6.5%. This lower earnings volatility is underpinned by those long-term growth drivers, making healthcare an attractive proposition during periods of market uncertainty.
Healthcare is out of favour
Despite these compelling fundamentals, healthcare has been out of favour.
The sector has underperformed significantly. In Q2 2025, the S&P 500 Healthcare Index experienced one of its worst quarters relative to the broader market in recent history – a performance only comparable to when the Clinton administration threatened sweeping policy changes back in 1993.
This time around, it was again the threat of changes in US policy that drove the sector downwards, but on multiple fronts. Investors grappled with the Trump administration’s announcement of pharmaceutical industry-specific tariffs and the threat of a ‘most favoured nation’ (MFN) drug pricing plan for US government-funded healthcare.
There was also continuing fallout from the controversial appointment of Robert F Kennedy Jr as Secretary of Health and Human Services.
However, the team at Polar Capital believe we have likely hit peak fear, and the sector could be about to turn, highlighting the valuation discount between the sector and the wider market.
Relative valuation
Healthcare’s relative valuation compared to the S&P 500 is in line with lows seen only three times in the past 36 years.
Importantly, the S&P 500 Healthcare Sector’s relative forward P/E ratio has shrunk to levels that historically preceded strong recovery phases. Although this by itself is not a predictor of an imminent rally, such dislocations rarely last for long, especially for a sector the size of the healthcare sector.
Looking at a past dislocation as an example and the 2015 biotech correction, when valuations contracted sharply, the Nasdaq Biotech Index rebounded by more than 60% over the following five years.
Indeed, after two of the previous three major healthcare de-ratings over the past 36 years, a bull market ensued.
Supporting the case for a recovery in the sector, Polar Capital highlights thatHealthcare sector ETF’s have experienced outflows on a rolling 1-year basis for a prolonged period going back to 2023. They see this as a ‘powerful contrary indicator’.
In addition to market pricing, the macro environment is showing signs of improvement.
In September, greater detail emerged on Donald Trump’s tariff plans for the sector and MFN pricing issues.
President Trump did as he promised announced a 100% tariff on branded pharmaceutical imports, but crucially, the tariff will not apply to companies building or expanding manufacturing facilities in the US. Most large pharmaceutical companies have already announced significant investments in US capacity. The UK’s AstraZeneca, for example, plans to invest $50bn in US manufacturing.
More significantly, on the final day of September, the US government and Pfizer reached an agreement adopting MFN pricing for certain channels in exchange for a three-year moratorium on tariffs.
This agreement reflects a willingness on both sides to negotiate in a way that preserves the sector’s ability to invest in innovation.
While uncertainty remains about whether further concessions will be required, we mustn’t underestimate the clarity recent developments give the sector.
Fundamental growth drivers remain firmly intact
Despite all the negativity, the sector is in a strong position with higher utilisation and new product launches being key drivers for growth.
With a few exceptions, the Q2 2025 results season underlined this strength and provided reassurance.
As Gareth Powell, Head of Healthcare at Polar Capital, notes: “Valuations have now been pulled down to such an extent that the potential returns from here for healthcare stocks look extremely compelling. As evidence of this, despite the concerns over US government policy, M&A activity is starting to pick up again.”
Investment approach and strategy
PCGH’s investment objective is straightforward: to generate capital growth by investing in a diversified global portfolio of healthcare stocks.
The Trust invests primarily in listed equities issued by healthcare companies involved in pharmaceuticals, medical services, medical devices, and biotechnology, diversified by geography, industry sub-sector, and investment size.
Healthcare is an extraordinarily diverse and rapidly evolving sector. It is far more complex than simply buying and holding a few large-cap pharmaceutical stocks and this is reflected in PCGH’s approach.
The portfolio structure is designed to balance defensive growth with emerging innovation.This approach allows PCGH to combine the stability and cash generation of established healthcare leaders with exposure to the high-growth potential of smaller innovative companies.
This is a combination difficult to achieve through passive or single-strategy approaches. PCGH’s active closed-ended approach is something that sets them apart from other vehicles and adds an enviable dimension to its proposition.
Six Investment Themes
The team focuses on six key investment themes that they believe will drive returns over the next 5-10 years:
- Healthcare Delivery Disruption – Telehealth, robotics, ambulatory surgery centres, and home health are shifting utilisation to lower-cost settings
- Innovation – Gene and cell therapy, targeted oncology, novel vaccines, and rare disease treatments addressing high unmet medical needs
- Consolidation – M&A activity that is accretive to growth and returns, bringing complementary technologies and pipeline assets
- Emerging Markets – Accelerating investment and regulatory flexibility creating strong growth prospects among 5 billion people with increasing wealth
- Outsourcing – Contract Research Organisations, manufacturing, and real-world data driving productivity improvements
- Prevention – Diagnostics, vaccines, remote monitoring, and co-ordinated care representing the best healthcare strategy
Artificial intelligence and machine learning are being adopted across all these themes to drive efficiencies and superior outcomes.
Polar Capital Global Healthcare Trust
In addition to the strength of the portfolio and attractiveness of current healthcare valuations, Polar Capital Global Healthcare Trust has another allure in the upcoming tender offer and changes to its charging structure.
The Trust will remove its fixed-life structure and replace it with a rolling five-year tender offer mechanism, starting with an initial 100% tender offer to all shareholders in November, and repeating every five years thereafter.
Other proposals that will benefit investors include removing the performance fee, adopting a tiered management fee structure, and implementing active discount management through share buybacks.
The investment strategy remains unchanged. However, there is a notable tweak to the Trust’s allocation policy that allows up to 30% to be invested in small and mid-cap companies.
Polar Capital Global Healthcare Trust presents an opportunity for investors who want to secure the stable and growing cashflows of the world’s largest healthcare firms, but also want to employ the specialist support of managers who have the ability to identify those smaller companies that may well become the world’s next pharma or healthcare giant.
And we believe the timing for the sector couldn’t be much more attractive.