A Healthy Outlook For This Healthcare ETF | ETF Trends

There are signs that the healthcare sector, one of this year’s laggard groups, is looking to shed that status. For example, on Friday, just 11 ETFs hit all-time highs and eight of those were healthcare funds.

One of those eight was the Guggenheim S&P Equal Weight Healthcare ETF (NYSEArca: RYH)As an equal-weight ETF, RYH leans away from pharmaceuticals and biotechnology stocks, which are usually the largest industry weights in cap-weighted healthcare funds.

Previously, investors embraced healthcare stocks for the sector’s growth and defensive characteristics, providing investors with yields and valuations that are less stretched than other yield-producing stocks like utilities. Some market observers believe the sector’s selloff is overdone and that healthcare stocks could be poised to bounce back.

Importantly, healthcare ETFs, including RYH, hit new highs in the days following the latest Democratic debate, indicating political pressure on the sector may be easing.

If Dems Win…

This year, healthcare ETFs have been dogged this year by speculation that Medicare For All could become a reality if Democrats win the White House in 2020. Many of the most visible Democratic contenders for that party’s 2020 presidential nomination are embracing Medicare For All.

“Investor worries that a Democratic president might usher in a Medicare for All health program that would decimate the role of private insurance and otherwise undermine the sector have clouded the stocks for most of the year,” Reuters reports. “But some of those worst-case fears have been lifting, analysts said.”

However, healthcare stocks, at least for now, have appeared to shake out of the politically-induced doldrums seen earlier this year and RYH’s compelling growth/value mix could prove attractive over the near-term.

Related: Quality is King Thus Far When it Comes to Factor Investing 

Sector weights are also driven by the number of companies in each sector rather than their market value, so RSP favors consumer discretionary, real estate and utilities sectors, but the equal-weight ETF underweights areas like tech, healthcare, and financials when compared to the market cap-weighted S&P 500.

“Healthcare stocks rallied sharply on Friday after U.S. Senator Elizabeth Warren, one of the top Democratic presidential contenders and a Medicare for All proponent, revealed how she would implement her healthcare plan,” according to Reuters. “It included a timeline that would initially retain many aspects of the current system, including employer-based private insurance while transitioning Americans to the government health plan that currently primarily covers individuals 65 and older.”

For more on smart beta ETFs, visit our Smart Beta Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.