Market InsightsStocks declined again in October, reflecting ongoing struggles for the coronavirus, economy and corporate earnings. Health care stocks lagged the broader S&P 500®

Index but continue to outperform year to date and trailing 12 months. In the U.S., economic growth rebounded dramatically in the third quarter, but remains negative year over year through September 30. These larger economic challenges flowed through to corporate revenues and earnings, which both declined based on S&P company reports. The index is on track for its biggest year-over-year decline in earnings since 2009. But the health care sector is on pace to report positive earnings growth for the same period, the best of any sector in the index.

Looking at health care sector performance, Life Sciences Tools and Services was the only industry to rise thanks to positive earnings reports from several leading companies in that market. These shares were attractively valued after underperforming earlier this year. Pharmaceutical stocks declined the most again in October. Safety concerns in several high-profile COVID vaccine trials and news of earnings misses and looming generic competition all affected pharmaceutical stocks. Biotechnology and Health Care Technology also performed worse than the broad Russell 3000® Health Care Index for the month. These more growth-oriented stocks underperformed in period when yields and volatility rose, and value stocks held up better than growth.

The Monthly Monitor

October 2020 Health Care Insights, Innovation and Impact

In the U.S., economic growth rebounded dramatically in the third quarter, but remains negative year over year through September 30.

Health care stocks lagged the broader S&P 500® Index but continue to outperform year to date and trailing 12 months.

Looking at health care sector performance, Life Sciences Tools and Services was the only industry to rise thanks to positive earnings reports from several leading companies in that market.

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Data from 10/1/2020 – 10/31/2020. Source: FactSet. -5.95%

-5.34%

-4.86%

-2.94%

-1.19%

-0.62%

3.33%

Pharmaceuticals

Biotechnology

Hea lth Care Technology

Russell 3000 Health Care Index

Hea lth Care Equ ipment & Supplies

Hea lth Care Providers & Services

Life Sciences Tools & Services

How Did Health Care Industries Perform Last Month?

-2.94% -1.76%

5.23%

15.37%

-2.66%

0.37%2.77%

9.71%

-5%

0%

5%

10%

15%

20%

One Month One Quarter Year to Date One Year

Russell 3000 Health Care S&P 500

Health Care Sector Performance

United NationsSustainableDevelopmentGoals

“Ensure healthy lives and promote well-being for all at all ages.”

Impact Themes

Innovative treatments for diseases

Access to medicines and services

New solutions for lowering health care costs

Enhancing productivity of equipment, services and software

Transitioning from Treatment to PreventionWhile we continue to monitor potential treatments and vaccines for COVID-19, this issue of the Monthly Monitor will highlight attempts to move the focus of health care more from treatment to prevention.

Change the Incentives, Change the Landscape of CarePrevention in health care is a concept that everyone embraces, but it’s hard to implement in practice. Care providers are typically compensated based on the number of patients they see or procedures they perform. Their incentive is treating more sick people. That’s different than making sure patients stay well and avoid needing care in the first place. Strangely, prevention is against the economic self-interest of care providers.

Why is this so important? Because the demand and expense for care are rising rapidly worldwide. In developed economies, the population is aging, and older patients require more care at a higher cost than younger patients. Meanwhile, developing economies are moving up the health and wealth curves, massively increasing demand for health care. This places a premium on broad access to cost-effective care. Arguably, one way of doing that is by incentivizing prevention over treatment.

U.S.-based UnitedHealthcare is one example of an insurer advocating this approach. While it may seem counterintuitive to contend the world’s largest private health insurer is an impact investment, the company is working to deliver prevention-based care through accountable care organizations (ACOs).

An ACO is a group of physicians, hospitals and other health care providers assigned a certain number of patients. The insurer agrees to pay the ACO a predetermined amount of money each year for the patients’ coordinated care. The ACO and insurer split the amount of any savings to the insurer. This simple change radically alters the economic incentives for care providers. They aren’t denying their patients care but trying to ensure their patients stay healthy.

Stock in Focus UnitedHealthcare is the largest private health insurer in the world. We believe it is the leading disruptor of the health care delivery model in the U.S. Its Optum division focuses on delivering prevention-based care through ACOs. These ACOs are growing rapidly and provided just under half of the company’s revenue and profit in 2019. In addition, the company has developed urgent care centers and stand-alone surgical centers that offer significant savings over traditional hospital and emergency room visits.

Every stock we consider undergoes an environmental, social and governance (ESG) evaluation and risk assessment. Our ESG team finds that UnitedHealthcare rates highly along the social dimension, with a positive overall view of the firm’s ESG quality. In addition, the stock is consistent with several important social impact goals. These include more productive and efficient services for research, testing and therapies; improved access to medicines and health care services in developed and emerging markets; and new solutions that lead to lowering the cost of health care.

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A strategy or emphasis on environmental, social and governance factors (“ESG”) may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. A portfolio’s ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.

Past performance is no guarantee of future results.

The opinions expressed are those of the portfolio team and are no guarantee of the future performance of any American Century Investments portfolio. This information is for an educational purpose only and is not intended to serve as investment advice. References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

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Michael Li, Ph. D.

Sr. Portfolio Manager

About the AuthorsMichael Li is a vice president and senior portfolio manager for American Century Investments. Before joining the firm in 2002, Michael was a scientist and project manager for the Pharmaceutical Research Institute of Bristol-Myers Squibb Co., managing cross-functional teams in filing investigative new drug applications to the FDA and providing support to researchers from drug discovery to development.

Michael holds a bachelor’s degree in materials science and engineering from the University of Science and Technology of China, a master’s degree in business administration from the Wharton School of the University of Pennsylvania and a Ph.D. in chemistry from the University of Michigan.

Henry He is a portfolio manager for American Century Investments. Previously, he was a senior equity research analyst and portfolio manager at BNP Paribas Investment Partners, where he was responsible for managing the firm’s health care and biotechnology sector funds. Henry holds a bachelor’s degree in economics from Harvard University. He is a CFA® charterholder.

Kevin Lewis works with clients to provide insights and perspectives on global growth equity markets. He also represents portfolio management in communicating the firm’s growth equity philosophy, process and performance results. Kevin holds a bachelor’s degree in business from Virginia Tech. He is a CFA® and CAIA® charterholder.

Henry He, CFA

Portfolio Manager

Kevin Lewis, CFA, CAIA

Sr. Client Portfolio Manager