The healthcare sector is often viewed as a complex and ever-evolving landscape, posing challenges for investors seeking long-term growth.

However, two fundamental drivers are converging to create an environment ripe for outperformance: an aging population and continuous medical innovation. We explore how these factors are propelling the healthcare industry forward and why actively managed closed-end funds (CEFs) offer a compelling option to navigate this dynamic sector.

Aging demographic, rising demand

The world's population is aging at an unprecedented rate, with the number of individuals aged 65 and above projected to reach 1.6 billion by 2050.1 This demographic shift translates into a burgeoning demand for healthcare services. As individuals age, they are more likely to experience chronic conditions and require preventative care, medication, and various medical procedures. This surge in demand is expected to fuel significant growth in the healthcare sector over the coming decades.

Relentless innovation

The intersection of healthcare and technology, we believe, presents a myriad of opportunities for growth and innovation. The use of artificial intelligence (AI) in healthcare has become increasingly popular. AI can be used for various healthcare purposes such as detecting, diagnosing, and treating diseases. It includes technologies such as 3D printing, algorithms, virtual reality, and machine learning – to name a few. AI is being used in multiple healthcare domains, including drug discovery, workflow enhancement, and diagnostic support, making it a significant area of life sciences.

Cutting through complexity

While the rise in healthcare demand is a given, the continuous stream of medical innovation unlocks this sector's full potential for investors. Advancements in areas like genomics, personalized medicine, telemedicine, and artificial intelligence (AI) are revolutionizing how diseases are diagnosed, treated, and managed. These advancements are leading to more effective therapies, improved patient outcomes, and even preventative measures that can help people live longer healthier lives.

These combined forces – an aging population and relentless innovation – position the healthcare sector for robust long-term growth. However, navigating this complex space effectively may be challenging for investors.

Why active management shines in healthcare

While passive indexing can offer broad market exposure, it may not be the optimal strategy for the healthcare sector for several reasons:

Rapidly evolving landscape

The healthcare industry constantly evolves, with new technologies and therapies emerging regularly. Passive funds, which are tethered to specific indexes, may struggle to adapt to these changes and capture the full potential of emerging opportunities.

Identifying disruptive innovation

Not all innovations are created equal. Actively managed CEFs, with their dedicated teams of healthcare specialists, can analyze companies, assess their research and development pipelines, and identify those with the potential to be disruptive leaders in their respective fields.

Separating hype from reality

The healthcare industry is not without its fair share of hype and speculation. Actively managed CEFs can leverage their expertise to distinguish promising ventures with sound science and strong commercial potential from those that may not live up to their initial buzz.

Unlocking closed-end fund advantages

Beyond active management, closed-end funds offer unique advantages in the healthcare sector, such as the ability to use leverage strategically to amplify returns and generate higher potential income through regular distributions.

Final thoughts

While the healthcare sector is undoubtedly complex, the confluence of an aging population and continuous medical innovation, especially given the current uncertain macro-environment, paints a compelling picture for long-term growth. Actively managed closed-end funds, with their structural advantages, are well-positioned to help investors navigate this dynamic landscape and capture the full potential of this exciting sector.

Important information

Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund's investment return and principal value will fluctuate so that an investor's shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund's portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.

The use of leverage will also increase market exposure and magnify risk.

Closed-end funds are similar to mutual funds in that they professionally manage portfolios of stocks, bonds or other investments. Unlike mutual funds, which continuously sell newly issued shares and redeem outstanding shares, most closed-end funds offer a fixed number of shares in an initial public offering (IPO) that are then traded on an exchange. Open-end funds can be bought or sold at the end of each trading day at their net asset values (NAVs). Because closed-end funds trade throughout the day on an exchange, the supply and demand for the shares determine their market price; closed-end funds'; market prices may fluctuate through the trading day and those prices may be higher or lower than their NAVs. Closed-end funds and mutual funds charge investors annual fees and expenses. All of these products may use leverage to enhance their returns, which can magnify a fund's gains as well as its losses. Closed-end funds typically do not have sales-based share classes with different commission rates and annual fees. Both vehicles seek to deliver returns based on their investment objectives, but neither is FDIC-insured. The Revenue Act of 1936 established guidelines for the taxation of funds, while the Investment Company Act of 1940 governs their structure. Aberdeen Standard Investments does not provide tax or legal advice; please consult your tax and/or legal advisor.