The healthcare sector is the third-largest sector in the S&P 500 and it has been an important driver of returns during what has been one of the longest bull markets in U.S. history. However, some of the air has come out of the healthcare trade this year amid intense presidential election year rhetoric aimed at high pharmaceuticals prices.
The silver lining is that 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 the Vanguard Health Care ETF (NYSEArca: VHT) and the Health Care Select Sector SPDR (NYSEArca: XLV).
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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.
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_stories]“Health care sector fears have mostly been political, with this year’s presidential election looming. The prevailing feeling is that Trump would be good for biotech but bad for hospitals, and Clinton would be bullish for managed care and hospitals, but bad for biotech,” according to ETF Daily News. “Investors have responded to the political uncertainty by pulling out $1 billion from VHT over the past year.”
Nevertheless, potential investors should note that while history can be a great guide to sector investing, history is no guarantee of future results.
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“Rewind back to 2011 when Obamacare was just getting started. Health care stocks sold off pretty much universally, only to rally again once the market figured out that the Affordable Care Act was actually hugely beneficial to many health insurers and other health care stocks. Sure, some stocks continued to lag, but the sector as a whole rebounded nicely,” adds ETF Daily News.
For more information on market sectors, visit our sector ETFs category.
Vanguard Health Care ETF
