The health care sector remains one of the worst performing areas of the market, despite the recovery off the Feb. 11 lows. With the earnings season coming up, health care stocks could be one of the few bright spots in the markets and exchange traded funds that track the sector could lead ahead.
Based on a percentage of “Buy” ratings at the end of March, analysts are most optimistic on the health care sector, according to FactSet. About 61% of analysts had a Buy rating on health care at the end of the first quarter.
The improved outlook for the health care industry comes as many expect continued growth in the sector, despite an ongoing so-called earnings recession in the S&P 500. While FactSet anticipates the broad S&P 500 to show an earnings decline of -9.1% for Q1 2016, the health care sector is expected to report revenue growth of 8.9%.
S&P Global Market Intelligence also mirrors this sentiment, projecting S&P 500 Q1 EPS to decline 7.5% year-over-year but anticipating 2.9% earnings growth for the health care sector.
Investors seeking high-quality exposure to the health care industry have a number of options available, including the Health Care Select Sector SPDR (NYSEArca: XLV), iShares U.S. Healthcare ETF (NYSEArca: IYH) and Vanguard Health Care ETF (NYSEArca: VHT).
XLV is the largest ETF option in the space, with $12.4 billion in assets under management. The Health Care Select Sector SPDR ETF tracks health care companies taken from the S&P 500. XLV has a 0.14% expense ratio.
VHT provides similar exposure to XLV, except the Vanguard option includes a broader 340 component holdings, compared to XLV’s smaller 58 stock portfolio. Additionally, VHT has a cheaper 0.09% expense ratio, compared to XLV’s 0.14% expense ratio. However, the Vanguard Health Care ETF is much less actively traded, showing an average daily volume of about 300,000 shares, according to Morningstar data.
IYH is another alternative that comes with about 122 stock components, but the iShares U.S. Healthcare ETF shows a costlier 0.48% expense ratio.