Published date: 7th August 2025 | Author: Westfield Capital Management
Last year was no one’s idea of a banner performance for the health care market. But before turning to despair about the long-term future of the sector, it’s worth taking a sober look at the structural landscape of health care today. And once we do, we’ll quickly see that there are plenty of signs suggesting momentum in 2025.
While the year-to-year shifts in performance for health care have occasionally been volatile, keep in mind that when we zoom out, the sector has not just succeeded but thrived, having outperformed the S&P 500 since 2000. We can’t rely on past performance, of course, but this is a sector that has been a historic performer over the past two decades.
Turning our analysis to the future, the most important element to take into account is the rising cost of health care. This might not seem like a positive for the market at first glance. But consider another way of framing the issue: A sector facing rising costs will necessarily require innovation. And in the market, innovation means an opportunity to capture alpha.
Medical Research: Lower Costs In our investment strategy, we are heavily focused on one question: How does a company lower costs in the health care system? The rise of GLP-1 drugs offers an instructive example. The promise of reducing cardiovascular disease, along with various comorbidities of obesity including diabetes, portends a huge reduction in costs for the health care system in the aggregate – and given the performance of the leading producers of these drugs, the market clearly agrees.
Macroeconomic environment: M&As As we look toward the macroeconomic environment, there are further positives for health care. The M&A landscape is accelerating – in part thanks to a more permissive FTC under the new Trump administration, but also because many leading pharmaceutical companies are vulnerable to patent expiration in the next five years. The time-honoured way of replacing this revenue is through M&A. It’s no surprise that, in 2025, we’ve already seen a deal topping $14 billion, the largest such deal for biopharma in a year.
Overall Market: Tariffs and Tech Stocks
Finally, when we consider the overall market, there are further signs that health care should be poised for a rebound. Many investors have turned away from tech stocks, with the so-called “Mag 7” down from their 2024 peak. And while President Trump’s tariffs have unleashed havoc throughout the global economy, if there is one sector suited to withstand any forthcoming shocks, it might be biotech and biopharma. As it currently stands, drugs are largely exempt from tariffs, and the majority of R&D and manufacturing already takes place domestically.
Do these trends mean we should expect a less volatile health care sector? Not necessarily. To a large degree, volatility is baked into this market. But a volatile sector is precisely where an active management approach can pay off. Rather than following an index and placing small bets on a wide range of different companies – many of which have negative enterprise value – active management allows for a more considered strategy. Our tactics revolve around three main investment buckets: high-quality health care, high-growth medical technology, and innovative biotech that is de-risked in the clinic and close to commercialisation.
Harbor Health Care UCITS ETF (WELL) aims to provide exposure to the secular growth and innovation of the U.S. health care system. while achieving alpha relative to the broader healthcare sector by investing in quality businesses with differentiated products, technologies, and services which meet the team’s disciplined valuation criteria.
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