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.
Earlier this year, U.S. healthcare conglomerate Johnson & Johnson (NYSE: JNJ) announced that in the next four years, it expects to submit over 10 new medicines, which could potentially generate $1 billion in annual revenue each. Looking ahead, industry growth will be propelled by a slew of niche or specialized drugs with a targeted application for specific diseases. [Innovators to Support Healthcare Sector, ETFs’ Growth]
Moreover, J&J believes it will sustain above-industry compound annual growth through 2019 – the industry average compound growth rate is expected to be around 3% for the period. Looking ahead, industry growth will be propelled by a slew of niche or specialized drugs with a targeted application for specific diseases.
“Technician Ari Wald of Oppenheimer said he sees the sector rising another 5 percent to return to the July breakdown level around 850. The sector also hit an all-time high in July at 892,” reports CNBC.
Health Care Select Sector SPDR
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.