With U.S. stocks continuing to grind higher, technology and Internet names continue grabbing plenty of attention, but investors should overlook the contributions of the healthcare sector. The Health Care Select Sector SPDR (NYSEArca: XLV), the largest healthcare exchange traded fund, is up more than 14% year-to-date.
Healthcare’s rally has it sitting slightly ahead of financial services for the second-largest sector allocation in the S&P 500. The performance of XLV and rival healthcare efforts is undoubtedly impressive in the face of political efforts to repeal the Affordable Care Act (ACA), also known as Obamacare.
Hospital stocks were seen as big winners under Obamacare because with more Americans having access to health insurance, hospital operators would be able to be compensated for more procedures and services while providing fewer services for free.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled.
“The math matters. Technology stocks, the market’s darlings in 2017, are less fearsome when mega-cap companies such as Apple Inc. are treated equally with others. Versions of the S&P 500 Information Technology Index that strip out market-cap bias show the biggest winners in this year’s market are health-care stocks. “We doubt many realize that equal-weight health care is outperforming tech,” Chris Verrone, head of technical analysis at Strategas Research Partners wrote in a note, reports Bloomberg.
Some other math matters as well. That being the more than $1.3 billion in new money hauled this year by XLV. That is good for one of the more impressive totals among all sector ETFs and it proves the point investors are bullish on healthcare.
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.
XLV allocates about two-thirds of its combined weight to pharmaceuticals and biotechnology stocks. The ETF holds 63 stocks with a weighted average market value of $121.5 billion.
For more information on the healthcare sector, visit our healthcare category.