The main function of the HHI is to monitor the performance, and to highlight the attractiveness, of life sciences investments over the long term, and to try to identify those stocks that have disruptive technologies that consistently allow them to outperform both the index and the markets. Many of the 52 constituents of the index are high-risk, still being in the development stage, with micro-capitalisations and a long way from profitability. Despite this, some companies can still make extremely attractive returns for investors. However, although pharmaceutical, biotech and healthcare industries have defensive qualities, they are not immune from global economics.
Furthermore, the development and commercialisation of new drugs and medical technologies is capital-intensive. Given the interlink between inflation and interest rates, coupled with the increased risk-aversion of investors since the middle of 2022, there has been a financing crunch, which particularly affects smaller companies at the earlier stages of drug discovery and development with less robust financial profiles.
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