Why healthcare is leading our returns this financial year
Within Australian equities, healthcare is an area where we have found compelling opportunities. Many companies have structural demand growth, valuable intellectual property, high barriers to entry and long-duration earnings streams. The sector also has relatively deep pool of companies whose products contribute positively to human wellbeing.
The recovery in the sector was a key driver of relative outperformance.
Source: ASF attribution, three months to September 30 2026.
One quarter does not make a trend. But Healthcare's 20-year record as the strongest performing sector in the ASX 300 does. It has outperformed the index by 4% pa1, driven by structural growth dynamics that we expect to continue, as we explain below.
How we invest
We start with the Ethical Charter, assessing potential investments against it before they can enter our ethical investment universe. From there, our portfolio managers assess their investment merits before deciding whether to include them in a portfolio.
On the investment side, we invest in companies where we see valuation upside, companies operating in growing industries, and with strong financial positions. Specifically, we look for companies generating strong cash flows and with balance sheets strong enough to fund their own growth.
Our investment approach is also informed by long-term structural trends. We look at how the world is changing, where we see opportunities for sustained growth, and which companies we believe are best positioned to benefit. This research has led us to focus on four key themes, with our investment team actively selecting the companies within them that we believe offer the most compelling opportunities.
- Tech efficiency – companies using technology to do more with less
- Future-building industries – businesses constructing the infrastructure and systems the economy needs next
- Energy transition and renewables – companies driving the shift away from fossil fuels
- The aging thematic — businesses supporting growing, older populations worldwide
Where healthcare fits
Healthcare sits across two of those themes: the aging thematic and future-building industries.
As the population ages, demand for better therapies, treatments, and diagnostics grows. At the same time, advances in medical technology, from diagnostics and devices to new medicines, have helped people live longer and healthier lives, with global life expectancy rising by more than 20 years since the 1950s.2 This explains why quality healthcare companies tick both our investment and ethical assessment boxes.
Which healthcare companies performed well in the last quarter?
CSL (+63%) – quality recognised again
CSL is one of the world's leading providers of plasma therapies and vaccines. Over the past year, the market became pessimistic about its earnings outlook, questioning the resilience of its plasma franchise and its capacity to generate sustainable earnings growth over the medium term.
Management's renewed focus on operational execution, cost efficiencies and performance improvement is beginning to gain traction across the group. The market responded positively to signs of stabilisation under the interim CEO and increasing confidence that earnings momentum is strengthening. We believe CSL remains well positioned to deliver attractive earnings growth, supported by its leading global market position and the enduring structural growth in plasma demand.
Cogstate (+26%) – tracking future demand
Cogstate supports pharmaceutical and biotech companies developing new drugs, predominantly in central nervous system diseases. Their cognitive assessment technologies play a direct role in clinical trials aimed at improving neurological health and healthy ageing outcomes. The focus is on healthspan rather than lifespan — not just how long people live, but how well.
Australian Ethical first invested in Cogstate in July 2019, at a time when the business had a market cap of well under $50 million. That investment was meaningful for the company's development at a critical stage of its growth. Today, Cogstate is a profitable, growing business with a market cap of over $550 million.
In the September quarter, Cogstate performed strongly, supported by continued momentum in demand for its services. As at 1 October 2026, the stock is up 60% over six months. It was one of the best-performing stocks in the Australian Shares Fund over both the three-month and twelve-month periods. The market is starting to catch on to what we already see in this business.
The long-term view
Short-term price movements don't guarantee or even indicate future returns. Markets can be very fickle and the September quarter reversal for healthcare showed how quickly a downturn in the previous quarter can quickly be recovered. We focus on fundamental qualities which we expect to support sectors and companies over the long term.
We focus on fundamental qualities which we expect to support sectors and companies over the long term.
We didn't rotate out of healthcare when sentiment turned against it in June. We kept our conviction, continued to hold, and the recovery is beginning to reflect what we saw in these businesses all along. Learn more about our disciplined ethical approach and active equities solutions.
1 ASX sector performance to 30 September, 2026, Factset
2 Swiss Re Institute, https://www.swissre.com/institute/research/sonar/sonar2023/medical-advances-life-expectancy.html
Interests in the Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949), the Responsible Entity of the Australian Ethical Managed Funds.
This information is of a general nature and is not intended to provide you (or your clients) with financial advice or take into account your (or your clients’) personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the product disclosure statement (PDS), information memorandum and target market determination (TMD) for the relevant product and the financial services guide available on our website.
Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the portfolio(s) may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the portfolio(s) may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.
Our investment restrictions include thresholds and other tolerances that vary depending on the investment. We apply both qualitative and quantitative analysis when making investment decisions and may invest where we believe the positive aspects outweigh the negative. From time to time, we may use derivatives that provide temporary exposure to a broad market index, such as the S&P/ASX 200. This does not involve direct investment in, or ownership of, the underlying companies. For more information, please read our Ethical Guide.
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The information contained in this document is believed to be accurate at the time of compilation.
