The Health Care Select Sector SPDR (NYSEArca: XLV), after several years of being one of the best-performing traditional sector ETFs, is lagging in 2016, but that could be set to change as some market observers are forecasting looming upside for the S&P 500’s third-largest sector weight.
Healthcare has been one of the most beloved sectors during the current bull market, meaning many market observers see the group’s recent pullback as an opportunity to add to or initiate positions in healthcare stocks or ETFs such as XLV and rivals including the iShares U.S. Healthcare ETF (NYSEArca: IYH) and Vanguard Health Care ETF (NYSEArca: VHT).
Related: Healthcare ETFs Ready to Rally
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.
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.
[related_stories]XLV “dropped from a high of $77.40 in 2015, to a low of $62.68 in February (ignoring the August 24 one-day crash low of $56.63). Throughout that decline, the price found resistance on numerous occasions between $73.26 and $72.61. By early June the price had rallied off the low and back into that resistance zone. There are a couple of reasons why the price could break above that resistance, and keep heading higher,” reports Investopedia.
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.
Related: These ETFs are Ready to Rebound
Alternatively, investors who want to specifically target these areas may also look to ETF options like the iShares U.S. Medical Devices ETF (NYSEArca: IHI) or SPDR S&P Health Care Equipment ETF (NYSEArca: XHE). Both IHI and XHE are comprised of medical devices and health care equipment stocks.
“One reason is that the January/February decline just barely dropped below the September swing low, showing a lack of downside strength. The price then rallied and erased all of the January/February decline, which shows momentum is currently on the side of the bulls,” adds Investopedia.
For more information on Healthcare ETFs, visit our Healthcare category.
Health Care Select Sector SPDR
