While the healthcare sector is not necessarily stretched on valuation, stock pickers ought to be selective in the group, which is the second-largest sector weight in the S&P 500.

IYH has a trailing 12-month dividend yield of 1.85% and a three-year standard deviation of 13.21%, according to issuer data. The fund’s price-to-book ratio is 4.30 and its price-to-earnings ratio is almost 25.

“We see a relatively higher share (9%) of 5-star stocks in the drug manufacturing industry. While concern over drug pricing pressures has abated to some extent, we believe the market has still placed too much pressure on potential drug pricing concerns, opening up a couple of significantly undervalued stocks,” according to Morningstar.

For more information on the market sectors, visit our sector ETFs category.