Mark Barnes, PhD,
Indhu Raghavan, CFA,
- The global Health Care industry has steeply underperformed regional equity indices over the last two years and notably since the outcome of the US presidential elections in November 2024. The industry has faced several headwinds, but US healthcare policy uncertainty is the latest.
- Both US and other developed Health Care industries have high dependency on US revenues and have lagged their benchmarks, likely due to exposure to US policy uncertainty. The FTSE Emerging Health Care industry has been more protected, possibly because its revenues are less dependent directly on the US.
- From a sector standpoint, Pharma & Biotech and Medical Devices & Equipment derive a larger proportion of their revenues from the US market than Health Care Providers and are therefore more sensitive to US healthcare policy and trade barriers. This is reflected in these sectors’ relative performance since October 2024.
- The performance differences we have seen between several developed and emerging Health Care industries, and between Health Care sectors during October 2024-June 2025, combined with these regions and sectors’ revenue exposure to the US market, suggest that US healthcare policy uncertainty may have been an additional headwind for the industry during this period.
It is not remarkable to say that equity markets have seen unprecedented policy uncertainty and volatility thus far in 2025. What is remarkable is how they have broadly rebounded after each pullback to offer investors gains on the year despite the persistence of underlying risks. However, one industry that has performed rather poorly is Health Care. During the first half of 2025, Health Care was the worst-performing industry, on average, across key FTSE regional equity indices. In this note, we put the industry’s recent underperformance in context and discuss its potential exposure to US health policy uncertainty.
To be sure, the global Health Care industry has been under pressure over the last 2.5 years. Take the example of the US. Exhibit 1 shows the rebased performance of select FTSE USA industries relative to the benchmark, which covers large- and mid-cap equities. Since 2022, all defensive US industries have underperformed the benchmark index, which is not surprising since this period coincided with the ascendence of Technology fueled by AI optimism. By early-September 2024, the FTSE USA Health Care index had dropped by 20% from its end-2022 level in relative terms. Subsequently, after the US Fed’s first 50 bp policy rate cut in mid-September, and as markets began to price in a higher probability of a Trump victory in the US presidential election, we saw a divergence even among defensives. By end-June 2025, Health Care underperformed even more than Consumer Staples that remained under pressure.
Exhibit 1: Select FTSE USA industry relative returns, rebased, USD
Source: FTSE Russell/LSEG. Data as of 30 June 2025. Returns rebased to 30 December 2022. Past performance is not a guarantee of future results. Please see the end for important legal disclosures.
Why has Health Care underperformed broadly in the post-Covid period? The industry has faced several headwinds. Companies have faced margin pressures from rising prices during the post-Covid supply shock that could not be passed on to payers due to fixed price contracts. In the US in particular, a rising share of national health expenditures is accounted for by Medicare and Medicaid payers[1] limiting the scope for price increases for drugs and medical services. Since the US election, healthcare policy uncertainty can be added to the mix. The current US administration has a number of proposals related to renegotiating drug prices, cuts to Medicaid and medical research funding, altering rules for participant enrollment via the Affordable Care Act, and the relaxation of vaccine mandates that are likely to be additional near-term headwinds for the industry. And the US is a critical market for the Health Care industry not just in the US but globally.
Given this sharp downturn in US Health Care, we focus on this period since just before the US presidential election and examine the global Health Care industry’s performance through key FTSE country and regional indices covering large- and mid-cap equities. Exhibit 2 shows rebased performance for several country and regional Health Care industries relative to their respective benchmarks since end-October 2024, just before the US presidential election. It illustrates that Health Care in the US, Europe, Japan and Asia Pacific region lost between 16% and 20% on a relative basis between end-October 2024 and end-June 2025. FTSE Emerging Health Care stands out for being flat over this time period relative to the FTSE Emerging benchmark.
Exhibit 2: Select country and regional Health Care industry relative returns, rebased, USD
Source: FTSE Russell/LSEG. Data as of 30 June 2025. Returns rebased to 31 October 2024. Past performance is not a guarantee of future results. Please see the end for important legal disclosures.
We would expect that US-domiciled healthcare companies are heavily exposed to US health policy uncertainty, but it appears that global health care companies are as well. A closer look at the revenue sources of global healthcare companies and the performance of different sectors within the Health Care industry sheds some light on the connection. Exhibit 3 shows the revenue exposure of the FTSE All-World ex US Health Care industry to the US market. Specifically, these numbers are the share of the industry’s revenues that come from the given country. Here we see that the US market accounted for over 41% of global ex-US Health Care revenues. The next nine largest markets[2] accounted for 30.4% of revenues in aggregate.
Exhibit 3: FTSE All-World ex US Health Care industry revenue exposure to the US, Percent
Source: FTSE Russell/LSEG and Factset. Data as of May 2025. Past performance is not a guarantee of future results. Please see the end for important legal disclosures.
While the Health Care industry has underperformed recently, there are interesting differences in sector performance as illustrated in Exhibit 4. The three sectors are Pharma and Biotech, Medical Equipment and Services, and Health Care Providers. Of these, the first two are more concentrated in physical goods (drugs and equipment) that are traded, while the third is more concentrated in services. During this period, the two more-traded sectors underperformed across most regions, while the least traded sector underperformed in the US but outperformed in Europe and Japan, while lagging slightly in the Asia Pacific region. The Emerging region was an outlier with a small outperformance in Pharma and Biotech, and underperformance in the Health Care Providers sector.
Exhibit 4: Health Care sector relative returns, USD, Nov 2024-Jun 2025
Source: FTSE Russell/LSEG. Data as of 30 June 2025. Past performance is not a guarantee of future results. Please see the end for important legal disclosures.
It is interesting to tie these performance patterns to the various regions' connections to the US market. Exhibit 5 illustrates each FTSE country/region’s various Health Care sector revenue exposures to the US.
Exhibit 5: Select country and regional Health Care sector revenue exposures to the US, Percent
Source: FTSE Russell/LSEG and Factset. Data as of May 2025. Past performance is not a guarantee of future results. Please see the end for important legal disclosures.
- As sectors, the more traded Pharma and Biotech and Medical Equipment & Services generally have higher US revenue exposure than Health Care Providers globally (with Asia Pacific being an exception). It makes these sectors potentially more sensitive to US healthcare policy changes and trade barriers, and indeed these were the sectors that underperformed during November 2024-June 2025.
- The FTSE Emerging Pharma & Biotech sector had the least revenue exposure to the US among the regions considered. This lower US revenue exposure likely results from the fact that developed market (DM) pharmaceuticals invest in drug research and development (R&D) and recoup their R&D expenses primarily from large DMs such as the US and to a lesser extent the UK and other European economies. EM pharmaceuticals, on the other hand, typically provide contract drug manufacturing services or produce generics that are sold in domestic markets and other EMs. The FTSE Emerging Pharma and Biotech sector drew 35% and 12% of revenues from China and India, respectively, besides the 25% from the US.
- Among the Medical Equipment & Services sectors, revenue exposure to the US market was lower than that of Pharma & Biotech but still important. In Europe, Asia Pacific and Japan, the Medical Equipment & Services sector had approximately 20-40% revenue exposure to the US. In Europe, the next four markets[3] combined accounted for 17.4% of the sector’s revenues, far less than the US’s 37.4% share. While the sector in the Asia Pacific region was more diversified from a revenue standpoint, its largest revenue exposure was still to the US. In Japan, the US was the second most important market for the sector after the domestic market. By contrast, in the Emerging region, the sector drew only 7.7% of its revenues from the US.
Conclusion
The global Health Care industry has faced secular headwinds since the Covid crisis. However, US healthcare policy uncertainty can be added to the mix of reasons for the industry’s recent underperformance. While the US Health Care industry is directly impacted by some of the proposed policy changes in the US, other developed Health Care industries have high dependency on US revenues and have fared poorly during this period. The FTSE Emerging Health Care industry has been more protected, possibly because its revenues are less dependent directly on the US.
Notes:
The country indices use here are from the FTSE Global Equity Index Series (GEIS) of indices: https://www.lseg.com/en/ftse-russell/indices/global-equity-index-series
1. Estimated to have increased from a share of 36% in 2013 to 39% in 2023. Source: Centers for Medicare and Medicaid Services. Data accessed, July 31, 2025.
2. These were Japan, China, Germany, the UK, France, Canada, India, South Korea, Italy.
3. The next four largest markets after the US for Developed Europe Medical Equipment & Services were Germany, the UK, China and Japan.
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