ETF Trends
ETF Trends
  • Broader healthcare exchange traded funds have languished this year
  • Overall growth may slow and signs of an economic slowdown could pop up
  • Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care

Amid political posturing and concerns about elevated valuations for biotechnology stocks, broader healthcare exchange traded funds have languished this year, but those struggles could be giving way to buying opportunities in ETFs such as the Vanguard Health Care ETF (NYSEArca: VHT).

Moreover, with the U.S. economy moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care. [Sector ETFs for the Late Business Cycle]

Vanguard, the second-largest U.S. ETF issuer, recently lowered the annual fees on its sector fees to the lowest in the industry. VHT’s annual expense ratio is now a paltry 0.1% per year, or $10 per $10,000 invested.

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]

The Affordable Care Act has helped millions of Americans receive healthcare coverage, with the uninsured rate now at a seven-year low, bolstering the outlook for healthcare services and sector-related exchange traded funds.

“According to our simple price momentum model, the sector appears to be very oversold on a rolling 6 month basis, sitting close to -2 standard deviation at the end of February. If history is of any guide, we believe the sector is poised for a short-term rebound from current levels,” according to a Seeking Alpha analysis of VHT.

VHT is heavily allocated to blue-chip pharmaceuticals names, such as Dow components Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK) and Pfizer (NYSE: PFE), but the ETF also devotes more than 20% of its weight to biotechnology stocks.

Vanguard Health Care ETF