May is nearly here and with the arrival of the fifth month of the year comes the start of the historically weak six-month period for stocks. “Sell in May and go away” is more than a catchy phrase. Data prove equities can disappoint during the May through October period.
“On a seasonal basis, the six-month stretch from May to October is historically a weak period for the S&P 500 Index, dating back to 1990,” said S&P Capital IQ in a new research note.
However, not all sectors wilt when the calendar turns to May. While S&P Capital notes consumer discretionary, industrial and materials names traditionally exhibit weakness in the May through October stretch, others, including consumer staples, prove durable. Add health care to the list of sectors that do not need to be sold in May. [Beat Sell in May With This ETF]
Health care strength in the May-October time frame could spell opportunity with the SPDR S&P Health Care Services ETF (NYSEArca: XHS), which S&P Capital IQ rates overweight.
“However, the Health Care sector, rising 4.7%, was the best performing sector and it has the second highest frequency of outperformance, at 65%, just behind Consumer Staples. Within sub-industries, Health Care Services (4.8% average gain), Pharmaceuticals (4.7%) and Health Care Distributors (4.4%) were on average some the brightest spots within the sector,” according to the research firm.
Now that the Affordable Care Act, also known as Obamacare, is rolling out, XHS could see an even more favorable fundamental picture next year as more Americans obtain health coverage. [This Health Care ETF Could Surge Again]
XHS, which has almost $71 million in assets under management, allocates over 31% of its weight to health care facilities managers, bolstering the ETF’s status as a hidden gem play on Obamacare. Hospitals are the big winners in the Affordable Care Act because more people — up to 27 million – could end up buying insurance and going for procedures. Unlike in times past, the hospitals won’t have to do a lot of those procedures for free,” reports Eric Balchunas for Bloomberg.
Adding to the bull case for XHS is impressive estimated earnings growth for the health care sector this year.
“Thus far, health care companies within the S&P 500 Index generated and are expected to generate stronger first quarter earnings growth than initial Capital IQ consensus forecasts. As of April 28, first quarter earnings were expected to grow 4.2%, much better than the 0.8% expected decline as of the beginning of April. Full year 2014 earnings are now expected by Capital IQ consensus to climb 9.7%, higher than the 7.6% for the broader S&P 500 Index,” said S&P Capital IQ.
XHS, which charges 0.35% per year, is an equal weight ETF where no holding accounts for more than 2.44% of the fund’s weight. Top-10 holdings include Select Medical (NYSE: SEM), Tenet Healthcare (NYSE: THC), Community Health Systems (NYSE: CYH) and Universal Health Systems (NYSE: UHS). [Another Obamacare ETF Winner]
SPDR S&P Health Care Services ETF
