The S&P 500 is hitting record highs. On its own, that is an impressive feat, but it is even more impressive when considering the benchmark’s second-largest sector weight, healthcare, has been an obvious laggard this year.
Broad market strategies that do not include healthcare stocks, and there are not many, are outperforming basic S&P 500 exchange traded funds (ETFs) this year. The SPDR S&P 500 ETF (NYSEArca: SPY) is up 17.19% while the ProShares S&P 500 Ex-Health Care ETF (NYSEArca: SPXV) is higher by 20.66%.
It is not just enough to be invested in the markets to grow an investor’s portfolio. It is also important to reduce exposure to certain areas in a changing market environment.
Investors may consider an ex-sector stock exchange traded fund strategy in the current environment to exclude exposure to underperforming areas and participate in broad market growth.
What’s Next for Healthcare?
Healthcare stocks and 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. Additionally, the group has been plagued by politicians pushing for lower drug prices.
The White House is looking into costs by requiring healthcare providers to publicly disclose the back-channel prices they charge insurance companies for services. The White House also considered proposals on banning rebates in Medicare that would halt billions of dollars in discounts that drugmakers provide insurers and other companies.
Of course, SPXV is avoiding these headwinds. SPXV includes a larger 23.84% tilt toward tech, 15.71% financials, 11.74% consumer discretionary and a combined weight of over 19% to the consumer staples and industrial sectors.
Bottom line: the weight assigned to healthcare in the S&P 500 is spread out among the other 10 sectors in SPXV so the ETF does not feature sector-level concentration risk or massive sector overweights relative to the S&P 500.
For more information on the healthcare segment, visit our healthcare category.