The European healthcare equity sector performed remarkably well last week, giving a big boost to various exchange-traded funds (ETFs) tracking European healthcare indices. Investors have recently been pouring money into more defensive equity exposures, like healthcare, which tends to be less reliant on the movements of the broad economy.
Even in today's difficult economic environment, the healthcare sector has exhibited strong cash generation ability and has maintained access to credit markets. The largest European healthcare firms, moreover, have robust product pipelines enabling them to maintain sustainable competitive advantages. Morningstar’s healthcare analysts believe that 2012 will be stocked with acquisition news and deals.
Last week, Human Genome Sciences (HGSI) received and rejected an unsolicited acquisition offer from GlaxoSmithKline (GSK) for $13 per share, representing a $2.6 billion acquisition price tag. Despite the rejection, the takeover bid does represent the strength of Europe's largest pharmaceutical firms and their confidence in the continued demand for new drugs and vaccines.
Volatility-linked products were among last week's worst performing exchange-traded funds and products (ETPs). Volatility-linked products typically spike when expected future volatility (i.e. 'fear') rises, and therefore, can prove an effective counterweight to long-equity exposure. Despite last week's bout of relatively poor economic data, these fear-trackers plummeted as expectations for the future volatility of equities eased.This article was originally published on Morningstar under the title: A Good Time for Healthcare Stocks.
Tags: credit markets , equity sector , European , exchange-traded funds , GlaxoSmithKline , healthcare , healthcare stocks , Human Genome Sciences , investments , market volatility , stocks , volatility