Healthcare exchange traded funds have been among the best performing market segment this year, and money managers anticipate the sector may still have legs.
Year-to-date, the Health Care Select Sector SPDR (NYSEArca: XLV) gained 10.3%, iShares U.S. Healthcare ETF (NYSEArca: IYH) rose 11.0% of Vanguard Health Care ETF (NYSEArca: VHT) increased 11.6% and Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) returned 11.6%. Meanwhile, the S&P 500 index added 3.5.
Ever since Federal Reserve Chair Janet Yellen sounded off a warning on the biotech sector, undeterred money managers have been adding on to their healthcare positions, reports David Randall for Reuters.
According to Lipper data, the average active large-cap equity fund now includes about 15.8% healthcare stocks, their highest tilt in three years.
ETF investors have also been adding on healthcare exposure. For instance, XLV attracted $1.3 billion in net asset inflows year-to-date while IYH added $397.9 million, VHT brought in $915.8 million and FHLC saw $211.7 million in inflows, according to ETF.com.
“With aging demographics in the US and the developed world, healthcare needs are going to grow dramatically faster than GDP,” portfolio manager Graham Tanaka said in the article.
While some may warn of the potential bubble forming in the healthcare space, other market observers argue that a broad selloff similar to the bursting tech bubble will be unlikely as health care spending is a growing component of the U.S. economy, according to Randy Gwirtzman, co-portfolio manager of the Baron Discovery fund. [Innovators to Support Healthcare Sector, ETFs’ Growth]
The healthcare sector is expected to make up 19.9% of U.S. gross domestic product by 2022 from 17.1% in 2013, according to the Office of the Actuary at the Centers for Medicare and Medicaid services. Meanwhile, economists project the economy to expand 2.4% this year.
Additionally, some money managers are shifting away from pricier biotech names in search of cheaper areas in the healthcare space. For instance, Matthew Kaufler, a portfolio manager of the Federated Clover Value fund, has been acquiring healthcare services companies as a play on the aging baby boomer generation. ETF investors can also target this segment of the healthcare space through the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) and SPDR S&P Health Care Services ETF (NYSEArca: XHS). [Healthcare Services ETFs Strengthening on Larger Client Base]
For more information on the healthcare sector, visit our healthcare category.
Max Chen 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.