Healthcare sector exchange traded funds look more hale and hearty as increased healthcare spending helps lift second quarter growth.
Year-to-date, the Health Care Select Sector SPDR (NYSEArca: XLV) gained 17.1%, Vanguard Health Care ETF (NYSEArca: VHT) rose 16.8% and iShares U.S. Healthcare ETF (NYSEArca: IYH) increased 17.1%. The healthcare sector has outpaced the broader market, with the S&P 500 index up 9.5% so far this year. [Defensive Health Care ETFs Offer Growth, Too]
Healthcare and social assistance firm revenues rose 3% in the second quarter from the first three months of the year, with hospital revenue rising 2.8% and physician offices’ revenue jumping 4.1%, Wall Street Journal reports.
From the S&P 500 index, 54 healthcare companies posted aggregate revenue growth of 12% over the second quarter year-over-year, compared to a 7.5% sales increase for the first quarter.
“Health-care spending as a percentage of the economy continues to rise,” Stephen Stanley, chief economist at Pierpont Securities LLC, said in a Bloomberg article. As Affordable Care Act takes effect and the population ages, “everything points to continued increases.”
The higher-than-anticipated healthcare spending over the second quarter may have been attributed to the low-ball estimate extrapolated from weak spending in the first quarter due to harsh winter conditions keeping Americans from the doctor’s office.
“People are now starting to avail themselves of health care services,” John Herrmann, director of U.S. rate strategy at Mitsubishi UFJ Securities USA Inc. said in the Bloomberg article. “Going forward, it would be unrealistic to assume that the spending was as soft as was previously presented.”
Many observers have anticipated a jump in healthcare spending as a result of the ACA, or Obamacare. The Centers for Medicare and Medicaid Services estimates that healthcare spending could expand 5.6% this year, compared to 3.6% in 2013. [Despite Obamacare’s Best Efforts, Medical Device ETF Soars]
Health Care Select Sector SPDR
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