The market volatility of technology stocks, both to the upside and downside, are prompting some investors to take another look at healthcare strategies for its defensive properties.

Healthcare stocks have been one of the weakest performing sectors over the past three years, lagging the broader equity market after failing to fully recover from its post-Covid hangover.

The MSCI World Health Care index is up 20.16% over the past three years, compared with 72.59% from the broader MSCI World index and 93.63% from the Nasdaq Composite index.

Yet the stunning rally of certain tech stocks is prompting some private banks and family offices to consider health care stocks for its defensive and for a differentiated driver of returns in portfolios.

But private banks have faced challenges selling health care funds “because everyone wants to talk about artificial intelligence,” according to Andrew Hendry, CEO Asia and senior managing director, head of Asia Client Group at Janus Henderson.

“The promise of outsized returns in tech – that is driving everyone’s allocation right now within the private bank space,” he told FSA. “The over-enthusiasm in the market chasing tech is huge. The problem is US tech and three tech stocks in Asia have stolen the sunlight.”

“It is precisely because of this that health care, with its defensive qualities characterized by non-discretionary demand, is more relevant than ever,” he said.

Family offices in Asia are also taking an interest in healthcare strategies now that the sector is becoming too attractively priced to ignore, says Diya Lowe, head of distribution for Asia Pacific at Bellevue Group.

“We are seeing flows from contrarian investors who are happy to move away from tech and go into healthcare to take advantage of the mispricing,” Lowe told FSA. “There haven’t been significant flows, but we are getting interest from people who are looking at their portfolios and considering if they need to get more defensive.”

But even though flows have been modest, Lowe said investor inquiries and interest in the sector have picked up noticeably this year.

“For family offices who can take a longer-term view, they are among the contrarian investors who are taking a serious look at healthcare. They are basically looking at the sector and saying, this is undervalued.”

However, even though private bank chief investment officers are bullish on health care due to the fundamentals, it has been harder to get client attention without a performance impetus.

Hendry told FSA that Janus Henderson saw a lot of interest come into its health care strategies from the private banking space at the beginning of the year only after a recent burst in performance.

“Unfortunately, typically investors in the private banks and the retail banks will look at past performance, and when they see health care up 30%, that’s when they get into it, and that was January,” he said.

“Health care flows have been very decent to us, but not in the same order of magnitude as what we’ve had in our tech funds. Demand for our technology fund is particularly strong.”

Diya noted that some investors who already have health care exposure and like its defensive properties are starting to consider emerging market healthcare as a “higher growth way to access the defensive characteristics they like”.

“We’re having a number of positive conversations with private banks in Asia, who like the idea of emerging markets healthcare and are starting to consider attractive investment options beyond tech and AI,” she said.