- Unloved ETF healthcare segment may provide a cheap opportunity for bargain hunters
- SPDR S&P 500 ETF (NYSEArca: SPY) is up 0.8% so far this year
- Investors may also be trying to catch a falling knife after the huge sell-off in the biotech sub-sector as biotechs remain in bear market territory
Healthcare stocks, notably biotechnology names, and related exchange traded funds are the worst performing market sector of the year, lagging the broader equity rally in recent weeks. However, the unloved segment may provide a cheap opportunity for bargain hunters.
Year-to-date, the Health Care Select Sector SPDR (NYSEArca: XLV) decreased 6.9%, iShares U.S. Healthcare ETF (NYSEArca: IYH) fell 7.6%, Vanguard Health Care ETF (NYSEArca: VHT) dropped 8.5% and Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) declined 8.7%. In comparison, the SPDR S&P 500 ETF (NYSEArca: SPY) is up 0.8% so far this year.
Weighing on the health care industry, election year uncertainty has hit the sector, reports Tom DiChristopher for CNBC.
Both Democratic presidential front runner Hillary Clinton and GOP hopeful Donald Trump support the right for the government to negotiate Medicare drug costs. Additionally, Clinton has previously stated she would tackle “price gouging” from drugmakers if she is elected. [Clinton Delivers Poison Pill To Biotech ETFs]
Smead Capital Management CEO Bill Smead told CNBC, though, argues that investors are missing a buying opportunity in the health care sector as the area lags behind the broader equities market.
“We’re large cap value people. We want to buy meritorious, wonderful companies when everybody else hates them, and I certainly say they hate health care right now,” Smead added.
[related_stories]Smead singled out healthy names like Merck (NYSE: MRK), Pfizer (NYSE: PFE) and Amgen (NasdaqGS: AMGN) that show price-to-earnings ratios below the broader market measures, “fantastic” dividends and free cash flow.
Among the market capitalization-weighted health care ETF options, these three health care names make up about 15% of XLV, IYH, VHT, and FHLC’s underlying holdings.
Investors may also be trying to catch a falling knife after the huge sell-off in the biotech sub-sector as biotechs remain in bear market territory. Year-to-date, the iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB) plunged 25.7%, Market Vectors Biotech ETF (NYSEArca: BBH) declined 19.9%, SPDR S&P Biotech ETF (NYSEArca: XBI) decreased 29.2% and First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) retreated 25.7%.
The Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU) has also grown in popularity, attracting $132.6 million in inflows so far this year, as investors try to time a rebound in biotechnology. [Popular Short-Term Leveraged/Inverse ETF Bets]
Health Care Select Sector SPDR