RBC Strategies upgrade US Healthcare to “Overweight” rating by Investing.com

Investing.com — Healthcare funds saw “steady improvements” in flows after being weak for much of the year, according to analysts at RBC Capital Markets.

In a note to clients on Tuesday they upgraded their rating on the sector to “Overweight”, strategists noted that flows in the sector “appear to be moving back into positive territory”.

“Our US healthcare team remains constructive in their performance outlook and their views also have a constructive tilt on valuation, demand and the impact of lower interest rates,” they wrote, citing their latest forecast survey RBC analysts.

“Overall, the sector has one of the highest average scores across all questions. For us, it stands out that healthcare has the highest demand assessment score of all sectors in the survey,” the analysts said.

Valuations of healthcare firms have become “a bit expensive on an absolute basis,” they added, but are still below average on a relative price-to-earnings basis. Meanwhile, those companies’ per-share forecast revisions were “fairly balanced between positive and negative changes,” while sales updates were “slightly positive,” they said.

Conversely, flows to the utilities sector, which has performed well of late thanks in part to falling interest rates, have stagnated in recent weeks, according to RBC analysts.

“Utilities have also been a (artificial intelligence) play recently, and the deterioration we’re seeing in the sector may reflect both the idea that rate-cutting deals have already been done and continued skepticism around AI ”, the analysts said.

They subsequently downgraded the sector to ‘Market Weight’.

Outside of healthcare and utilities, RBC analysts reiterated their overweight position on US financials and materials. The energy outlook was also maintained, but the sector was placed on RBC’s downgrade watch.

Regionally, strategists said flows remain positive for the US, although recent levels are below historic highs. Flows to Europe became “less negative” but the improving trend stagnated, while flows to Australia and Canada turned “slightly positive”.