One way of approaching sharemarket investment is to look at sectors of the economy which are likely to perform well, and by any measure healthcare is one of these.

We have an ageing population of affluent baby boomers. It then follows that companies which service this demographic and their health needs should do well, along with associated services like retirement homes.

Add to that all the innovation in the general health industry around treatment, pharmaceuticals and technology and it is clear that healthcare is a sector to watch, even though most analysts will call it a “defensive” sector.

It might be defensive, but by the most basic measures it has been one of the most successful.

The ASX maintains an index of listed healthcare stocks, the S&P/ASX 200 Health Care Index which comprises two main industry groups.

The first is manufacturers of health care equipment and supplies, owners and operators of health care products and also of facilities. The second group is companies involved in research, development and production of medicines – pharmaceutical and biotech companies.

A look at the performance of this index over the last five years shows a gain of around 250 percent. This means that if you had invested $1000 five years ago and your investment had tracked the index, then you would have $2500 today.

Compare that with the ASX’s most general index, the All Ordinaries, which has put on around 30 percent over the same period. A $1000 investment tracking the All Ordinaries index would only be worth $1300 today in comparison.

Beyond index tracking, most investors like to pick stocks and some of the healthcare companies have been outstanding performers.

If you had invested in Ramsey Health Care five years ago, for example, you would have enjoyed gains of just under 400 percent over that time. Your $1000 would be more around $4000.

Shares in CSL, Australia’s leading biotech, have more than tripled over the same period.

Proving the value of stock picking, however, is the case of Healthscope, which operates private hospitals, medical centres and pathology services.

Investors in Healthscope have been on a roller coaster ride. Today’s shareprice of $2.23 is only marginally higher than the $2.10 the stock listed at when the company was floated in 2014.

Only a few months ago, however, the shares were trading at a record high $3.17.

So while picking a sector is one way to understand the market, it is through picking the stock that the investment gains are delivered.

Don’t forget to check with your financial adviser or stock broker before making any investment decisions.

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