Funds Flow into US Healthcare Stocks on Earnings Recovery and Undervaluation Hopes
Industry
Investment funds are flowing into US healthcare stocks. Expectations are rising that the sector, which has underperformed the market average for years, will continue to recover, driven by improving earnings, active M&A, and attractive valuations. The S&P 500 Health Care Index has risen 11.2% over the past three months, hitting a record high and outpacing the 6% gain in the broader S&P 500. According to LSEG Lipper data, about 50 US-listed healthcare funds saw inflows of 2.44 billion dollars in July, following roughly 1.5 billion dollars in June, marking a turning point after three consecutive months of outflows. A Bank of America survey shows that global fund managers' allocation to healthcare stocks swung to a net overweight of 32% in July, up sharply from 14% in June. The healthcare sector's forward price-to-earnings ratio stands at about 18 times, above its 20-year average of 15 times. However, the overall S&P 500 forward P/E is around 20 times. M&A activity is also brisk, with total healthcare M&A so far this year reaching approximately 284 billion dollars, approaching the 306 billion dollars recorded for the full year 2025. While some caution that the shift in funds could be temporary, bullish views are emerging that if earnings continue to improve, the inflows could become a sustained trend.
