Hedge fund bets that healthcare stocks will rise neared a five-year high last week, a Goldman Sachs (GS.N) note showed, as cash-rich speculators believe AI-driven breakthroughs and rich financing conditions will prove profitable.
The S&P 500 healthcare index (.SPXHC) is up almost 5% this year, while European related healthcare stocks (.SXDP) are up around 2% in the same period.
Hedge fund exposure to this sector relative to U.S. equities hovered last week near a 5-year high, the second straight week during which these hedge funds piled into this sector, Goldman Sachs said in the note dated July 24.
Hedge funds ramped up purchases of healthcare equipment and supplies, life sciences tools, and pharmaceuticals, the note added.
Several catalysts are driving momentum in this specialized area of finance, Goldman Sachs said in a previous client note, citing the use of AI as a tool in drug discovery.
Research productivity has risen while deal volumes that could benefit certain stock positions are projected to reach $173 billion in 2026 – the highest level since 2019, the earlier report said.
The Food and Drug Administration has expedited its approval process, with last year's annual tally of new drug approvals reaching its highest level since 2020, the note added, citing data to the end of 2025.
Volatility in the regulatory process of getting a drug approved has increased this year, hedge fund portfolio manager Felix Lo at Trium Capital said.
During mergers and acquisition deals, smaller pharmaceutical companies being bought are more willing to accept higher discounts, for the certainty of cash.
"This has created a robust environment for deals," Lo said.
Specialised healthcare hedge funds posted returns near 40% between August 2025 and April 2026, compared to generalist stock trading hedge funds which have returned 17% in the same time frame, Goldman Sachs' healthcare focused report said.
There are more hedge funds solely focused on healthcare this year, the bank added, with 24% of this year's new fund launches dedicated to the sector, the highest since at least 2009.
Of roughly $1 trillion managed by equity hedge funds, Goldman Sachs said about $283 billion is managed by those specialising in healthcare.
Total hedge fund industry capital increased by a record $409.3 billion in the second quarter to $5.6 trillion, data from hedge fund research firm HFR showed on Friday.
