Jared Holz on Healthcare Sector Underperformance and Managed Care Challenges

Healthcare Sector's Rough Performance

• 📉 The healthcare sector has significantly underperformed the S&P 500, down 11% over the past year while the S&P gained 14%.
• ⏳ Historically, healthcare has only outperformed the market in years when the overall market was declining.
• 🏥 Recent performance has been particularly brutal, with major companies like UnitedHealth, Centene, Molina, and Elevance experiencing significant drops.

Factors Driving Sector Decline

• ⚠️ Higher utilization in the healthcare system is a key headwind, most pronounced recently in Medicaid.
• 🏥 Changes related to Obamacare and potential shifts in coverage also contribute to the sector's challenges.
• 📉 Companies like UnitedHealth have seen massive market cap losses, with UnitedHealth losing 50% of its value this year alone.

Investor Sentiment and Future Outlook

• 🤔 Investors are questioning whether the current downturn presents a value trap or a genuine entry point.
• 📊 The sector has underperformed the market by over 20% annually for the past two years.
• 🔑 For managed care specifically, a reset in Medicare and Medicaid rates and an improved procedure volume backdrop are needed for investor confidence to return.
• ⚠️ More visibility on these variables is required before a larger investor faction will consider entering the space.