The healthcare sector was one of the best-performing sectors in the S&P 500 last year. Investors looking for more of the same this year can consider an array of exchange traded funds dedicated to the sector, including the Vanguard Health Care ETF (NYSEArca: VHT).
VHT allocates about two-thirds of its combined weight to pharmaceuticals and biotechnology stocks. There are other catalysts to consider, including that the U.S. economy is 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 healthcare.
VHT tracks the MSCI US Investable Market Health Care 25/50 Index and holds 374 stocks, meaning the ETF features exposure to mid- and small-cap names as well as large-caps.
“Although that broad mandate seems like it would provide enough diversification to allow its managers to steer clear of dangers while maximizing opportunities, 2017 didn’t provide very secure footing,” according to InvestorPlace. “The defeat of Obamacare (aka, the Affordable Care Act) was a top priority from inauguration day forward, and the jockeying over what was or wasn’t in the new legislation was constantly shifting.”
Industry observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
The pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose. However, the GOP is vulnerable to losing majorities in both houses of Congress in the upcoming 2018 mid-term elections.
“It was hard to get a read on if drug pricing was going to hurt big name drugs and benefit generics or how mergers would best be pulled off by big firms to keep their businesses moving in the right direction,” notes InvestorPlace. “In this kind of environment, sometimes it can be a curse to have too many options to choose from at your disposal. But not for the crew at VHT.”
VHT charges just 0.1% per year, or $10 on a $10,000 investment.
For more information on the healthcare sector, visit our healthcare category.