An exchange traded fund (ETF) industry strategist recommends investors overweight defensive sectors such as healthcare while trimming small-cap stocks to moderate risk in their equity portfolios.
Russ Koesterich, iShares global chief investment strategist at BlackRock, says among defensive sectors, he prefers healthcare over utilities and consumer staples. The analyst is avoiding utilities as he thinks they will be vulnerable to rising interest rates, while consumer staples companies are seeing input prices rise.
Healthcare stocks have “better pricing [and]more compelling valuations,” Koesterich wrote in a blog post.
“Starting with pricing power, the Consumer Price Index (CPI) for Medical Care has consistently outpaced overall inflation. Since 1995, CPI for Healthcare has risen by 4% a year, on average, versus less than 2.5% for a broad consumption basket,” the strategist said. “In recent years this trend has accelerated.”
The largest healthcare ETFs by assets include Health Care SPDR (NYSEArca: XLV), Vanguard Health Care ETF (NYSEArca: VHT) and iShares Dow Jones U.S. Healthcare (NYSEArca: IYH). [Pharma, Healthcare ETFs in Focus on M&A Talk, Earnings.]