Health care sector exchange traded funds are among the healthier segments of the U.S. equities market and could continue to grow stronger ahead.
UBS equity strategists argue that investors should overweight the health care stocks due to the sector’s “earnings momentum, strong top-line growth, attractive dividend yield and potential for further share buybacks,” reports Luke Kawa for Bloomberg.
Health care sector stocks have been outperforming the broader market this year on improving earnings growth. For instance, year-to-date, the Health Care Select Sector SPDR (NYSEArca: XLV) rose 7.4%, iShares U.S. Healthcare ETF (NYSEArca: IYH) gained 6.7%, Vanguard Health Care ETF (NYSEArca: VHT) increased 7.7% and Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) advanced 7.5%. In contrast, the broader S&P 500 Index is up 2.4% so far this year.
“We expect 6-per-cent sales growth from health care in 2016, well above nominal GDP and S&P 500 sales growth,” David Bianco, Deutsche Bank’s chief U.S. equity strategist, told Bloomberg. “We expect 6 to 9 per cent EPS growth. We doubt the S&P delivers better growth.”
The biotechnology sub-sector has been leading the charge in the health care space as merger and acquisition activity helped bolster returns. Biotech makes up 24.3% of XLV, 27.5% of IYH, 26.6% of VHT and 26.4% of FHLC.
The sector also ekes out some yield generation for those who want income. XLV has a 1.39% 12-month yield. IYH has a 1.07% 12-month yield, VHT has a 1.84% 12-month yield. FHLC has a 2.05% 12-month yield.