After dealing with some biotech blues during the latter part of the third quarter, diversified health care exchange traded funds are mounting comebacks. For example, the Health Care Select Sector SPDR (NYSEArca: XLV), the largest health care ETF by assets, has jumped more than 2% over the past two weeks.
As the Affordable Care Act adds millions into the healthcare system, the increased demand for health products and services are supporting the momentum in healthcare-related exchange traded funds. The healthcare sector fundamentals look favorable. According to actuaries at the Centers for Medicare and Medicaid Services, American spending on all healthcare increased 5.5% in 2014 year-over-year and is expected to grow 5.3% this year, reports Louise Radnofsky for the Wall Street Journal.
Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled. [Healthcare ETFs: Specialized Drugs in Greater Demand]
“Erin Gibbs, equity chief investment officer of S&P Investment Advisory Services, said she expects the sector strength to continue in 2015 and that health care is the only S&P sector currently forecast to see three years of double-digit growth,” reports CNBC.