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Sustainable Investing

Health Care Monthly Monitor

A review of health care sector performance, innovation and impact

By Michael Li, Ph.D., Henry He, CFA, Kevin Lewis, CFA, CAIA

Market Highlights

Stocks surged for the second consecutive month. The S&P 500® Index closed near its all-time high. Stocks in Japan rose but underperformed in broader developed markets.

The sector rebounded in December, and the Russell 3000® Health Care Index posted gains slightly better than the overall market. Health Care Technology and Biotechnology led performance. Health Care Providers and Services declined.

Relatively poor earnings growth and negative sentiment meant the Health Care sector’s performance didn’t match the innovation we witnessed. But we think innovation will continue apace in 2024.

Health Care Innovation and Opportunity Amid Uncertainty in 2024

Despite the uncertainty that volatile geopolitical and macroeconomic conditions will likely bring in 2024, we believe health care stocks present a compelling opportunity for potential financial return and social impact.

One factor underpinning our positive outlook is the commercialization of innovative scientific research. We often see new therapies and treatments in this report. And for a good reason — in recent years, we’ve seen breakthrough treatments for obesity, diabetes, many cancers, Alzheimer’s and other neurobiological diseases.

We can also highlight companies developing new medical devices and tools for better patient outcomes and significant health care delivery and funding improvements.

Health care stock valuations are relatively attractive heading into the new year after lagging in 2023. According to FactSet, earnings are likely to be strong, and analysts expect health care to produce the strongest earnings growth of any sector in the S&P 500® Index in 2024.

Challenges with Equity and Access Persist

Against these positives, ongoing challenges prevent achieving the U.N. Sustainable Development Goal of “ensuring healthy lives and promoting well-being for all at all ages.” Access to health care services remains highly uneven across and within countries.

The impact investing opportunity in health care overlaps with sustainability goals in innovation, cost and access. Cost is a vital issue because the high cost of care creates barriers to access. In addition, population health is highly correlated with income levels. As a result, more accessible, lower-cost solutions are vital to expanding dependable access to care and promoting health across populations. We believe companies finding market solutions to these challenges can offer competitive financial returns and positively impact society.

Eli Lilly Is a Leader in Innovative New Treatments

Lilly is a pharmaceutical company with a broad pipeline of potential blockbuster drugs, reflecting the firm’s strong history of research and development and commercial execution. Recent drug launches, potential new approvals and the lack of significant patent expirations give Lilly a strong growth profile for the next decade. We believe the company’s recently approved diabetes/weight loss reduction drug, tirzepatide, could be a large biopharma franchise. Its Alzheimer’s drug, Donanemab, has also shown positive stage 3 clinical trial results. The Food and Drug Administration is expected to approve the treatment in early 2024.

Our analysis indicates the company’s business is consistent with social impact goals of new or innovative disease treatments and access to medicines and services in developed and emerging markets.

Michael Li, Ph.D.
Michael Li, Ph.D.

Vice President

Senior Portfolio Manager

Henry He, CFA
Henry He, CFA

Vice President

Portfolio Manager

Kevin Lewis, CFA, CAIA

Kevin Lewis, CFA, CAIA

Senior Client Portfolio Manager

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Many of American Century's investment strategies incorporate the consideration of environmental, social, and/or governance (ESG) factors into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider ESG factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh ESG considerations when making decisions for the portfolio. The consideration of ESG factors may limit the investment opportunities available to a portfolio, and the portfolio may perform differently than those that do not incorporate ESG considerations. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

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