Healthcare's persistent underperformance over the past two years has been a source of concern for investors, but it also presents an opportunity for those willing to look beyond the headlines. The sector's depressed sentiment, combined with robust fundamentals and an unmatched innovation pipeline, may be setting the stage for a meaningful rerating. In this article, I will delve into the key factors driving this opportunity and explore why healthcare equities are now an attractive entry point for wealth allocators in Asia. I will also discuss the broader implications of this dislocation and the potential for healthcare to become a more prominent part of portfolios in the coming years.
A Sector Out of Favor, But Not Out of Form
The healthcare sector has been underperforming due to a combination of political uncertainty in the United States, rising interest rates, and the gravitational pull of capital towards AI and technology stocks. However, beneath the headline weakness, the picture is markedly different. Fundamentals remain in good shape across multiple sub-sectors, even as share prices have failed to reflect this. The resolution of the most-favored-nation pricing dispute with the US government late last year effectively removed the single largest political overhang on the sector, and small and mid-cap biotech names have performed well on the back of strong clinical results and a surge in acquisition activity from large pharma companies.
Healthcare providers, particularly US health insurance companies, have endured a difficult stretch as medical costs surged among the elderly population. However, first-quarter 2026 results marked a turning point, with premiums being high enough to absorb the underlying medical cost. Medtech, by contrast, remains under pressure, trading down 16% year-to-date in dollar terms, largely due to uncertainty around the US government's decision not to extend Affordable Care Act subsidies for 2026.
The Valuation Case
The numbers paint a striking picture. According to Bellevue's analysis, the MSCI World Healthcare Index trades at roughly 17 times next-12-month earnings, compared with approximately 21 times for the S&P 500. On a relative basis, healthcare's price-to-earnings (P/E) ratio stands at 0.82 times the broader market, well below the 10-year average of 0.90. This undervaluation presents an opportunity for investors, as the capital now concentrated in technology and AI had to come from somewhere, and healthcare was among the sectors that funded that rotation.
Within medtech specifically, the valuation dislocation is even more pronounced. The sub-sector historically traded at 24 to 25 times earnings and has compressed to around 18 times, despite delivering six to nine percent organic revenue growth and low double-digit earnings-per-share growth. This makes the sector particularly attractive for investors seeking to build healthcare exposure at extremely attractive levels.
Innovation as the Growth Engine
While valuations provide the entry point, innovation underpins the long-term thesis. In cardiovascular medicine, lipoprotein(a), or Lp(a), represents one of the largest untapped opportunities. Roughly one in five people carry elevated levels of this genetically determined cholesterol variant, which cannot be managed through diet or exercise and for which no approved therapy currently exists. Several companies, including Novartis and Amgen, have candidates in late-stage trials, with Phase 3 data expected in the course of 2026.
In medtech, robotic surgery continues its structural advance. Intuitive Surgical's Da Vinci 5 system, which boasts 10,000 times the computing power of its predecessor, now incorporates AI-driven features including simulated surgical training, tissue pressure sensing, and performance analytics. The broader medtech landscape offers significant market expansion, with Bellevue's roadshow materials projecting the continuous glucose monitoring market growing from USD11.7 billion in 2024 to USD21.3 billion by 2029, while soft-tissue surgical robotics is expected to more than double from USD8.7 billion to USD19.1 billion over the same period.
AI as Enabler, Not Disruptor
A recurring theme at the roundtable was the role of AI within healthcare. AI functions primarily as an efficiency tool rather than a force that will upend the sector's economics. In pharma and biotech, AI is being deployed to accelerate drug development, improve patient selection for clinical trials, and predict toxicity profiles earlier in the process, with estimates suggesting potential savings of USD70 billion in drug development costs by 2028 and 40 to 70 percent reductions in preclinical timelines.
For health insurance companies, AI enables automation of invoice processing and contract management at scale. In medtech, heavy regulatory requirements around clinical data and device approvals create natural barriers that protect hardware-based businesses from software disruption. Healthcare is heavily regulated, and these companies also use AI to develop their software further, giving them a head start.
M&A as a Structural Imperative
Patent expirations loom large over big pharma, with hundreds of billions of dollars in revenue at risk over the next four to six years. M&A is an imperative rather than an option, as they will lose a couple of hundred billion dollars in revenues if they do nothing. The firepower is available, with the 20 largest biopharma companies collectively holding more than USD1 trillion in combined cash and additional debt capacity. Major transactions in 2025 and early 2026 underscore that the cycle is well underway, with medtech M&A also accelerating through deals such as Boston Scientific's USD14.4 billion acquisition of Penumbra and Danaher's USD9.7 billion purchase of Masimo.
Building the Case for Allocation
For wealth managers and family office professionals, healthcare remains structurally underweight in most portfolios, even as the sector's defensive qualities and innovation-driven growth make it an increasingly logical complement to concentrated technology positions. Healthcare is one of the best sectors for our generation because of the domain expertise required. While we don't know when the turn will come, the fact is that people are looking at their portfolios and are looking for more defensive places to invest in.
Bellevue, which manages in excess of USD6 billion predominantly in publicly listed healthcare equities and employs around 20 investment professionals with backgrounds spanning natural sciences and finance, positions itself as a specialist partner for investors seeking differentiated healthcare exposure. With vehicles covering broad healthcare, medtech, and services, and emerging markets healthcare, the firm is making the case that the current dislocation represents a window that disciplined allocators would do well not to ignore.
