In the past, whether the markets were on a tear or experiencing a pullback, health care exchange-traded funds (ETFs) have been a reliable place to park funds.
It didn’t seem that way to start 2019 as the sector lagged behind the S&P 500. In particular, the pharmaceutical business is experiencing a profit squeeze as a result of lesser-than-expected revenue from the sale of generic drugs. Big pharmacy chains like Walgreens Boots Alliance Inc and CVS Health Corp have lowered their earnings goals for 2019 as politicians clamor for an overhaul of the big pharma.
One analysts sees the tide changing however, suggesting signs of life for the sector and it’s associated ETFs.
Looking at the Health Care ETF (XLV), Mark Newton from Newton Advisors said on CNBC, “We have seen healthcare turn in the worst performance of the year. However, that does it a little bit of a disservice because in the last month this group has actually been the best performing sector of any of the major groups: it’s up about 4.75% in the last month. So when you take a look at a relative chart of how healthcare is doing versus the broader index [S&P 500], you see that this entire downtrend since late last year in healthcare relative to the S&P be broken. We are also entering a very seasonally bullish time for the group. June and July stands out as offering some the best returns for the last 5 years for the healthcare sector.”
When looking at which sectors of the group are the most robust, Newton suggests biotech and medical devices and as good places to park funds.
“Biotech stands out as being very strong. Pfizer’s acquisition of Array in the last week provided a real jump-start to a lot of these names.” He added, “I do think the group can really move up to the high 80’s, low 90’s when you look at that ETF, that is the XBI for the biotech group.”
Newton also recommends investors consider the Medical Devices ETF (IHI), as a way to play healthcare.
“It’s really been the medical device stocks that have been prudent to really stick with this group all along,” Newton stated.
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