In this short video, Research Analyst Aaron Schaechterle discusses healthcare volatility and why a smaller number of winners are driving outsized gains across the sector. He also speaks to why those winners have recently reacted less positively than in the past, even on encouraging news. Below is a transcript of the video linked to above.
We have seen significant volatility in the healthcare sector recently. It's been really as we analyze the data, over the past seven years, that this past quarter was the most volatile and the most negatively skewed volatility that we have seen of any quarter over that period. And as we look at that volatility, we want to examine why. Part of our reason is we think that the success within healthcare over the past year of the market, within different sub-sectors has been tremendously successful in healthcare. Med tech is up almost 40%. Small- and mid-cap healthcare is up over 30%. The market is up mid-teens-plus.
So I think the generalist portfolio manager is looking at their portfolio, broadly thinking about mean reversion and thinking about where they can potentially trim some outsize gains. They're also potentially reacting to negativity itself in the sense that portfolio managers tend to be letting winners run and trimming losers quickly.
What we've seen is a significant bifurcation in winners and losers, as a smaller number of winners are driving outsize gains across healthcare, broadly speaking. What's interesting over the most recent period is that those winners, even on good news in the past quarter, have not reacted as positively as they have in the past. Normally, the good news and bad news is met with less volatility and more balance.
In this past quarter, however, it has been more volatile and skewed negative. We think that part of the negative volatility has been due to business model sustainability around some of the losers, and a heightened focus on that due to the Amazon (NASDAQ:AMZN) effect re-platforming in technology, as well as just a focus on sustainability across the market broadly.
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