One of the things that I love about investing is that there is always something happening. Often things happen that are far more extreme than I would ever have imagined.

The current situation with ASX Healthcare stocks definitely qualifies. I would never have imagined that these stocks as a group would drop by 37% in 12 months. Healthcare is supposed to be a defensive sector, with long term tail winds.

Here is a graph of XHJ (price index of ASX healthcare stocks) vs the ASX200 over the past 5 years:

Interestingly, here is the same graph, but this time extending the time frame out to 20 years:

Paints quite a different picture, doesn't it?

Healthcare on the ASX had a massive decade of outperformance starting around 2011, stalled for a few years, and has crashed in the past 12 months.

There are not that many ASX200 healthcare companies, so the XHJ index is dominated by a few big companies, particularly CSL. But nearly every big name is down over the past 12 months, many quite significantly: CSL, COH, ANN, SHL, RHC, RMD, FPH, EBO, TLX

Obviously, in many cases there are company-specific factors (particularly CSL and COH recently).

But there does seem to be a negativity affecting the whole sector.

Which brings me to the actual point of this post. I wanted to highlight just how badly the whole sector seems to have fallen out of favour. Just to take one example, in 5 years CSL has gone from a PE of around 45, to a current PE of 14. Cochlear is a similar story, possibly still playing out. As it often does, I believe that the market has overcorrected. Definitely there was some overvaluation, now in many cases there is compelling value on offer.

Healthcare IS still a defensive sector with long-term tail winds. The population will continue to age, spending will continue to increase

As always, I didn't know how much further things may fall. In hindsight I started buying CSL much too early, although at least I left myself some headroom.

I do strongly believe, however, that there is an opportunity right now to start rotating into some high-quality ASX healthcare stocks