Why Biggest Healthcare ETF 'XLV' Has Been Sick | ETF Trends

The healthcare sector is in the midst of a stunning first-to-worst act. Last year, the sector was the best-performing group in the S&P 500, but this year, it is easily the worst. The Health Care Select Sector SPDR ETF (NYSEArca: XLV), the largest exchange traded fund (ETF) dedicated to the sector, is clinging to a modest year-to-date gain while some healthcare industry ETFs are performing much worse.

For example, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) is lower by 5.38% year-to-date and that fund’s losses have recently been accelerating. IHF has 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.

Those headlines are plaguing stocks such as Dow component UnitedHealth Group (UNH), Cigna (CI) and CVS Health (CVS), a trio that combine for almost 36% of IHF’s weight. Alone, UnitedHealth represents 22.07% of IHF’s weight and that stock is one of the worst-performing members of the Dow this year.

What’s Haunting IHF ETF

Even some good earnings news from UnitedHealth earlier this week was not enough to erase the specter of Medicare For All.

“Industry leader UnitedHealth Group (UNH) saw its shares decline $9.27, or 4%, to $220.93 in trading Tuesday despite reporting better-than-expected first-quarter earnings of $3.73 a share, up 23% over the year-earlier period and 13 cents above the consensus estimate,” reports Andrew Bary for Barron’s.

UnitedHealth even raised its 2019 earnings per share guidance to $14.50 to $14.75 a share from $14.40 to $14.70 and the stock has still been sliding. Shares of UnitedHealth are lower by more than 13% this month, sending IHF lower by more than 10% over the same period.

“The managed-care stocks could be under a cloud until after the 2020 election due to the risk of Medicare for All, which could severely curtail or eliminate the role of the companies,” according to Barron’s. “The stocks might get a boost if the Democratic presidential nominee—or the emerging front-runner this year—proves to be more moderate than Sanders and prefers to keep the current health insurance system largely intact.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.