ETF Trends
ETF Trends

After being one of the best performers among the sector SPDR exchange traded funds over the past two years and for much of the current bull market, the Health Care Select Sector SPDR (NYSEArca: XLV) is down more than 6% year-to-date.

While XLV and its rivals rank among the worst-performing sector ETFs this year, the healthcare sector’s malaise could be creating a buying opportunity in the group, particularly for investors looking for a sector to buy and hold for the long-term.

For XLV and rival healthcare ETFs, the good news is that 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]

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. The uninsured rate has declined almost 6 percentage points since late 2013, before the ACA, or Obamacare, took effect. More Americans gaining access to health insurance could bolster the long-term thesis for the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF).

Smead Capital Management Bill Smead told CNBC Monday he likes “Merck, Pfizer, and Amgen, companies that he said boast price-to-earnings ratios well below broader market measures, ‘fantastic’ dividends, and free cash flow.”

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In an election, political rhetoric looms large for healthcare stocks and ETFs like XLV, but Smead addressed that situation as well.

The sector will drop “to the point at which no one wants to own them, rather than six months later when you’re closer to the end of the populist rhetoric,” Smead told 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.