The healthcare sector is facing a rough economic picture and headwinds that could adversely impact the exchange traded funds that track it.
Key provisions have not yet been put into place, therefore, S&P Capital IQ Investment is giving the sector a marketweight rating.
“The pharmaceuticals sub-industry, which represents the largest weighting in the S&P Healthcare Sector at 50.5%, is faced with numerous challenges, in our view, most notable, the patent cliff that started in late 2011 and continues through 2014; additional taxes and fees along with higher required pricing discounts associated with healthcare reform, which began in 2011; and current and potentially additional austerity measures in Europe, which accounts for 25% of U.S. pharmaceutical sales,” Jeffrey Loo, CFA, of S&P Capital IQ Equity Research wrote in a recent report.
The Supreme Court is still ruling the constitutionality of the individual mandate component of healthcare reform law, a key piece of the legislation. A decision will be made in late June or early July, reports Loo. [Defensive ETFs for a Market Pullback]
The S&P Healthcare Index is 11.2% of the S&P 1500 Index, and gained 5.5% against the 9% rise in the S&P 1500. Healthcare valuations remain attractive to S&P Capital IQ Investment, with several sub-industries like biotechnology and pharmaceuticals trading far below historical levels. [Healthcare ETFs Live up to Their Defensive Reputation]
ETFs are offering investors a good option for well-rounded exposure to the sector and can help offset the risk of single company investing. [Healthcare ETFs Look to Supreme Court Ruling]
- Health Care Select Sector SPDR (NYSEArca: XLV)
- iShares Dow Jones U.S. Health Care Sector Index fund (NYSEArca: IYH)
- Vanguard Health Care Index Fund (NYSEArca: VHT)
Health Care Select Sector SPDR
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.