Investors who are seeking to bolster their portfolios can include healthcare sector-specific exchange traded funds that benefit from an aging demographic, expanding services and innovative products.
The healthcare sector has been among the best performing sectors so far this year. Year-to-date, the Health Care Select Sector SPDR (NYSEArca: XLV) gained 17.3% and Vanguard Health Care ETF (NYSEArca: VHT) rose 16.8%. [Consumer Spending Has Salubrious Effect on Healthcare ETFs]
With the sweeping changes in the healthcare system and rising employment, more people will have health care coverage, and Robert Goldsborough, manager, research analyst and ETF specialist with Morningstar, argues that healthcare ETFs like XLV and VHT are cost-efficient ways to access the growth, reports Joanne Cleaver for U.S. News.
Investors, though, should refrain from trying to time the market as the traditionally defensive sector is less likely to experience a major correction. “This is not a bargain-hunting situation,” Goldsborough added. [Defensive Health Care ETFs Offer Growth, Too]
Specifically, the analyst points out that healthcare trends are somewhat independent of overall economic conditions. Consequently, if the U.S. economy contracts, the healthcare sector is less likely to follow suit.
Moreover, Josh Emanuel, chief investment officer of the Elements Financial Group LLC, argues that since individual companies drive the sector and not just a general market shift, broad healthcare ETF investments provide greater stability.
“Over time, health care has never been the source of a bull market or the cause of a bear market,” Emanuel said.
Supporting the sector, pharmaceutical companies are enjoying a more efficient and streamlined regulatory process, which should help lead to a steady flow of new products. Pharma companies make up 44.9% of XLV’s holdings and 38.7% of VHT.
“The regulatory environment is more favorable than it has been,” Goldsborough said. “We’ve had new development in several areas, plus pharmaceutical companies have been buying biotech startups. The drug development is surprisingly strong.”
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.