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.