“Health spending is expected to grow 1.3 percentage points faster than gross domestic product per year until 2025, according to the U.S. Centers for Medicare and Medicaid Services. The health share of GDP is expected to rise to 20.1 percent by that time, from 17.5 percent in 2014,” reports CNBC.
There are other catalysts to consider, including 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. Still, political risk looms.
“It’s investors not willing to dump all of their money in just yet by using it through the ETFs or individual stocks, but really wanting some sort of position, thinking there is a possibility that the fundamentals may be good. The problem is, you just don’t know what the next tweet’s going to be, and that’s obviously a big factor right now on biotech,” Stacey Gilbert, head of derivative strategy at Susquehanna, told CNBC.
Ample political risk is potentially on the horizon as the Republican-controlled Congress looks to undo the Affordable Care Act, also known as Obamacare.
Among the most vulnerable to a shake up in the status quo, the hospital industry could be among the worst hit from the proposed changes, which could cause millions to lose health coverage. Looking at ETF options, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) would be among the worst off in case of a sell off in the health industry.
For more information on the healthcare industry, visit our healthcare category.