Healthcare funds: how to invest in the sector
Healthcare is a booming sector packed full of exciting businesses with the potential to become extremely lucrative investments. Trillions of dollars are spent every year on everything from new hospitals and devices to biotechnology breakthroughs and drug pipelines. This remarkable demand is driven by a combination of ageing populations, rising rates of chronic conditions, and medical advancements. The good news is that you can access this area by putting your money into healthcare investment funds that invest in these fast-growing businesses.
In this guide, we look at the pros and cons of investing in healthcare funds, the roles they can play in your overall portfolio and the best ways to get exposure.
Polar Capital Biotechnology
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Polar Capital Global Healthcare Trust
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Polar Capital Healthcare Opportunities
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What counts as healthcare in an investment fund?
Healthcare is an umbrella term encompassing a dizzying array of companies involved in diagnosing and treating medical conditions. This includes businesses that provide infrastructure, such as hospitals, as well as those with management roles within the sector. Some will be multinational giants, such as AstraZeneca, while others will be unfamiliar names quietly developing products in laboratories.
Here are the key sub-sectors you will find in global healthcare funds:
- Pharmaceutical companies that produce drugs.
- Biotechnology names that design new treatments.
- Healthcare providers, such as clinics and hospitals.
- Insurance firms providing cover.
- Medical device manufacturers.
- Diagnostics businesses supplying research and testing.
- Technology firms are working on digital health and AI solutions.
Healthcare funds vs healthcare ETFs vs investment trusts
There are different ways to access the healthcare sector. Alongside healthcare investment funds are exchange-traded funds and investment trusts.
Here we outline the broad pros and cons of each approach:
| Feature | Healthcare funds | Healthcare ETFs | Healthcare trusts |
|---|---|---|---|
| Management | Active | Passive | Active |
| Trading | Once daily | All day | All day |
| Positives | Can outperform Manager makes calls Responds to conditions | Transparent Low cost Easy to buy | Can use gearing Independent board Smoothed returns |
| Negatives | Higher fees Dependent on manager skill | Can’t outperform No stock picking | Potentially volatile |
Why investors buy healthcare exposure
The simple reason is that it’s a growing sector. There is strong demand for healthcare related products and services worldwide. Innovative companies are constantly developing better ways to diagnose, treat and manage chronic health conditions. The sector benefits from several structural drivers. These include ageing populations, the rising demand for care, and the constant supply of new drugs and fresh ideas. Many stocks invested in by global healthcare funds are defensive in nature. This means demand for their products will be maintained even during tougher economic periods. Investors may consider investing in healthcare funds to diversify their broader, overall portfolios or gain focused exposure to a particular theme.
Key risks of healthcare funds (and how to spot them)
So, what are the potential downsides of healthcare investment funds?
It all depends on the companies they invest in. Those researching new drugs may find their treatments don’t work or they struggle to gain regulatory clearance. Approval is one of the biggest risks facing many healthcare companies as they’re reliant on their products and services being given the go-ahead. Similarly, regulatory changes can pose threats. New administrations taking power can reverse previous decisions that can adversely affect businesses. Patent cliffs can also be an issue. This is when the exclusivity period for key drugs ends, and cheaper alternatives become available. This will obviously hit company sales.
Other risks include geographic concentration, general stock market volatility, swings in sentiment, and currency fluctuations. Your risk is obviously heightened if you only invest in one or two healthcare names. That’s why investing in healthcare funds is often better, as they’re more diversified.
How to choose a healthcare fund
What are the best ways to find the right healthcare investment funds in the UK? The first is to be clear on your investment objective. Do you want to invest in established, dividend-paying healthcare-related businesses or focus on innovative, growing companies? In the same vein, are you more drawn to a global or regional approach? How about developed markets versus emerging areas?
Next, you need to look at their positioning. Do they offer the right combination of company, sector and geographic exposure for your needs? Is there a market cap bias? It’s worth exploring whether they’re diversified across sub-sectors and how much exposure they have to early-stage (and riskier) biotech names. The manager’s past performance is also a consideration. How have they done over different time periods? Have returns been reliable or erratic? Do they have a high turnover of holdings?
How to use healthcare funds in a portfolio
Healthcare investment funds can serve various roles for investors, depending on the types of companies they invest in. For example, some can provide focused exposure to particular industries or themes, such as digital health and artificial intelligence. Others may invest in established pharmaceutical giants with global customer bases and strong cash flows to benefit from regular dividends.
A popular option is to hold a ‘satellite’ position to boost returns in a portfolio whose core consists of stable, dividend-paying stocks. A benefit of this approach is to add diversification. The amount that’s most suitable will depend on your circumstances. It’s also important to see whether there’s any overlap in terms of holdings between existing global equity funds you may own and the healthcare investment funds being considered.
What drives healthcare fund performance?
It’s driven by the performance of individual holdings. For example, companies may see their share prices increase sharply in the wake of successful drug trials. Drug pricing debates, regulatory approvals, patent cliffs, and merger & acquisition interest can all affect the performance of global healthcare funds.
It’s worth remembering that healthcare comprises several sub-sectors, each likely to be affected by different factors, including interest rates and inflation expectations. That’s why it’s important to consider like-for-like when you’re looking at different funds and examining how much they have invested in these individual sub-sectors.
Our process & how we select funds (Elite Rated)
FundCalibre can help you find the best healthcare funds. Our experienced analysts subject thousands of portfolios to close scrutiny and only award the very best a prestigious Elite Rating. Their research starts with AlphaQuest, our proprietary quantitative screening tool. This estimates the likelihood that a fund manager will deliver superior returns. Portfolios that pass this test will then be quizzed on key factors, such as their investment philosophy and approach to portfolio construction. The research gathered from these discussions and the previous analysis will then be subject to peer review within the team before a final buying decision is made. In addition, Elite Radar is a badge for funds that are on our watchlist. These portfolios are considered potential candidates for the Elite Rating.
FAQs about Healthcare Funds
What are healthcare funds?
Global healthcare funds are investment portfolios that invest in healthcare companies. This includes drug companies, biotechnology firms, medical device manufacturers, insurers and clinics.
Are healthcare funds a good investment?
Yes, they can be. These portfolios are involved in a sector with strong demand that’s populated by a string of innovative businesses. However, success will largely depend on how the funds are managed and in which companies they invest.
How risky are healthcare funds?
It depends on how they’re positioned. Healthcare firms can be adversely affected by regulatory developments, changes in government, competition, and clinical trial failures.
Do healthcare funds include biotech?
Yes, healthcare investment funds can often include biotech. However, you will need to check the holdings list for each individual fund to be certain. Additionally, many biotech funds also exist for direct exposure.
Healthcare funds vs biotech funds – what’s the difference?
Biotechnology funds are usually more focused on companies involved in the early stage of drug and treatment development. Healthcare investment funds, meanwhile, have broader exposure.
What’s the difference between a healthcare fund and a healthcare ETF?
Healthcare investment funds are actively managed. This means the manager can select companies they believe will outperform. An ETF simply tracks an index and aims to match its performance. This means their fees will be cheaper.
Are healthcare funds recession-proof?
Although healthcare funds are not recession-proof they are generally considered defensive. Demand for healthcare is largely non-discretionary, which provides relatively stable revenues and historically offers downside protection during economic downturns. In addition, many healthcare companies benefit from pricing power, helping to support margins even in weaker economic conditions.
How much of my portfolio should be in sector funds like healthcare?
It depends on your goals, risk appetite and existing investments. Generally, up to 10% gives you modest exposure; between 11% and 20% indicates a strong conviction in the area; anything higher is fairly concentrated.
Do healthcare funds pay dividends?
Depends on the fund itself. Those with an income focus may do so, whereas growth-oriented portfolios probably won’t offer payouts.
Why do healthcare funds often have high US exposure?
This is because the US is home to many of the sector’s biggest names. In fact, the eight largest companies in the sector by market capitalisation are in the US*.
What fees should I expect with healthcare funds?
It depends on the type of fund. Check the fund factsheets for more information.
How do I compare two healthcare funds fairly?
You need to look at their respective company, sector and geographic exposures, as well as stated investment philosophy. It’s also worth comparing fund manager track records and the various fees involved.
What should I look for in the fund factsheet/KID?
A fund factsheet will state the fund’s objectives and management team, as well as its asset allocation, geographic exposure, and the 10 largest individual holdings.
Can I hold healthcare funds in an ISA or SIPP?
Yes. You can hold them in both types.
*Source: Companies Market Cap, market cap in USD, at 22 March 2026