At the sector level, technology ETFs often receive plenty of attention, but investors should not overlook the recent out-performance offered by healthcare equivalents. For example, over the past 90 days, the Health Care Select Sector SPDR (NYSEArca: XLV) is topping the Technology Select Sector SPDR (NYSEArca: XLK) by nearly 300 basis points.
XLV allocates about two-thirds of its combined weight to pharmaceuticals and biotechnology stocks. There are other catalysts to consider, including that the U.S. economy is moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care.
“Health care stocks are not only the best S&P 500 performer in the past month, rallying nearly 7 percent, but they’re also closing in on record highs set in January,” reports CNBC. “The XLV health care ETF has had a strong summer. Since the end of May, it has rallied 9 percent and is just a 2 percent rally from an all-time high set on Jan. 29.”
Getting Defensive with Healthcare ETFs
For healthcare ETFs, the good news is that the U.S. economy moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care.
“Our view is that we’re kind of peaking out. The market is starting to get more defensive, it’s happening very subtly, but you’re seeing value start to become more attractive and you’re seeing staples, health care, these kinds of sectors are becoming very, very attractive,” said Gina Sanchez, CEO of Chantico Global, in an interview with CNBC.
Year-to-date, XLV is up 8.82%. Healthcare is the second-largest sector weight in the S&P 500. Only the technology and consumer discretionary sectors are beating healthcare this year.
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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.