The SPDR S&P Health Care Services ETF (NYSEArca: XHS) has lagged the broader health care sector in recent weeks, but there are fundamental and technical reasons for optimism with XHS, an ETF heavy on hospital and health care facilities operators.
Hospital stocks were bolstered earlier this year when the Supreme Court voted to uphold the Affordable Care Act, commonly known as Obamacare with six justices ruling to uphold the sweeping healthcare legislation and three dissenting.
“Hospitals are the big winners in the Affordable Care Act because more people — up to 27 million – could end up buying insurance and going for procedures. Unlike in times past, the hospitals won’t have to do a lot of those procedures for free,” reports Eric Balchunas for Bloomberg.
Consistently rising health care spending is another long-term fundamental catalyst that should support ETFs like XHS. 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]
Michael Kahn for Barron’s notes that charts for Tenet Health (NYSE: THC) and Community Health Systems (NYSE: CYH) may be indicating climax selling has been completed while HCA Holdings (NYSE: HCA) could be close to joining that group. HCA and Tenet combine for over 3.1% of XHS’ weight.