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The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.
Healthcare Investing: Finding Growth Beyond Pharmaceuticals
4 min read
Realizing the healthcare sector's full potential involves looking beyond a narrow segment of the market.
Investors are often drawn to healthcare for its innovation and long-term growth potential. Yet in practice, allocations are often concentrated in a few large pharmaceutical companies, whether through direct stock picking or index weightings. We believe these approaches can lead to narrow exposure in a diverse sector, instead of helping investors access healthcare’s broad opportunity set.
From new surgical technologies to life-saving treatments, healthcare companies produce some of the economy’s most exciting advancements. But market-cap weighted indexes may not fully capture that breadth because they naturally overweight a sector’s largest companies. In healthcare, many of those top names are pharmaceutical firms. While large drugmakers are an essential part of the healthcare landscape, they represent just one segment of an evolving sector.
A Diverse and Dynamic Sector, Often Narrowly Defined
Healthcare encompasses a broad range of businesses serving patients, providers and researchers. Beyond pharmaceutical and biotechnology companies developing new medicines, the sector includes medical device and diagnostic firms; life sciences tools providers; and healthcare services, technology and distribution companies that help deliver care efficiently to patients worldwide. Each industry has distinct growth drivers and competitive dynamics.
Even though healthcare benchmarks have evolved over time, drugmakers still dominate. Pharma stocks, which represented 82% of the MSCI World Health Care Index in 2000, comprise 45% of the index today (Display). While other industries such as healthcare equipment and supplies and healthcare services have increased in representation, benchmark-tracking investors are still disproportionately exposed to the success or setbacks of large pharmaceutical companies.
The Healthcare Sector Looks Very Different Today
Past performance does not guarantee future results.
*Numbers may not sum to 100 due to rounding.
As of May 31, 2026
Source: MSCI and AllianceBernstein (AB)
At first glance, this seems counterintuitive, given EM equities’ reputation for higher risk. In our view, the explanation lies in market psychology. Periods of extreme volatility often reflect an environment in which investors extrapolate worst-case scenarios. When fear peaks, much of the bad news is already priced in, so markets may deliver positive surprises as outcomes often prove less severe than feared.
Today’s environment does not yet suggest extreme market fear. Despite elevated uncertainty, the VIX has so far peaked at 31—at the threshold of levels that have historically signaled the most compelling forward returns for EM equities, and below the April 2025 jump following President Trump’s sweeping tariff announcements. Yet, history suggests that if volatility were to push decisively above 30, the medium-term outlook for EM stocks would become more attractive.
In fact, recent market history is instructive. After tariff fears peaked and pushed the VIX to 52 on April 8, 2025, the MSCI Emerging Markets Index surged by 64% through late February. Even after recent declines, the MSCI Emerging Markets was still up by 46% from last year’s VIX peak through March 27 (Display).
Leadership Within the Healthcare Sector Varies from Year to Year
Past performance does not guarantee future results.
HC: healthcare; LS: life sciences
Based on the total return index (gross dividends).
As of May 31, 2026
Source: MSCI and AB
Healthcare Leaders Typically Start Outside the Spotlight
For investors who want to allocate broadly to healthcare, the next question is how to gain that exposure—through passive strategies or active management.
As we see it, identifying healthcare leaders early is key. Often, the most exciting companies only become index constituents after they reach a substantial market cap, when most of their early growth has already occurred.
Some of today’s biggest healthcare names held small index positions—or none at all—while they were building pipelines, refining technologies and establishing market share. Active management can seek to identify similar companies earlier, when their opportunities may be less widely appreciated.
Innovation increasingly extends beyond drug development. Advances in medical technology, diagnostic testing and surgical equipment are creating new growth opportunities and AI is increasingly being introduced in commercial tools across the sector.
An Active Strategy Approach Can Help Uncover Potential Advantages
In our view, active management can add value to healthcare allocations in several ways:
- responding to changing company outlooks—for example, adjusting exposure as fundamentals shift, rather than maintaining static index weights that typically only change after share prices move;
- identifying emerging leaders earlier, particularly companies gaining traction before they enter benchmarks; and
- selecting stocks within subsectors, where index exposure may favor the largest or most established names rather than those best positioned to benefit from changing competitive dynamics and long-term industry trends.
Active healthcare fund managers can pair selective exposure to established large-cap companies with overweight positions in smaller, potentially faster-growing companies.
Large pharmaceutical companies with quality businesses certainly have a place in any healthcare portfolio. But an active approach can look beyond headline index weights to identify firms with durable fundamentals and diverse business models. In a sector that continues to reinvent itself, we believe that flexibility can create powerful advantages for long-term investors.
1. Ying Zhou, Yintao Zhang, Hangwei Xu, Zhen Chen, Shijie Huang, Yinghong Li, Jianbo Fu, Hongning Zhang, Donghai Zhao, Xichen Lian, Yuan Zhou, Xinyi Shen, Kaixuan Liu, Yunqing Qiu, Yanzhong Wang, Wanqing Xie, Lianyi Han, Haibin Dai and Feng Zhu, “Dynamic Clinical Trial Success Rates for Drugs in the 21st Century,” Nature Communications 16, no. 9537 (October 29, 2025).
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MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
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References to specific securities discussed are for illustrative purposes only and should not to be considered recommendations by AllianceBernstein L.P. It should not be assumed that investments in the securities mentioned have necessarily been or will necessarily be profitable.
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Investment involves risk. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This article is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor's personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer of solicitation for the purchase or sale of, any financial instrument, product or service sponsored by AllianceBernstein or its affiliates. This presentation is issued by AllianceBernstein Hong Kong Limited (聯博香港有限公司) and has not been reviewed by the Securities and Futures Commission.