Plenty of sector exchange traded funds have been battered since the start of the fourth quarter, but some defensive plays are performing less poorly than growth and momentum fare. For example, the Health Care Select Sector SPDR ETF (NYSEArca: XLV), the largest healthcare ETF by assets, is down just 1.6% in the current quarter.
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, the market’s best-performing sector this year with a 9 percent gain versus the S&P 500’s 0.2 percent loss, looks attractive to Matt Maley, equity strategist at Miller Tabak,” reports CNBC.
Political Outlook
With the Democrats taking over the House of Representatives and Republicans widening their majority lead in the Senate, Congress won’t be able to take another stab at overturning the 2010 Affordable Care Act, which extended health insurance cover to millions of previously uninsured Americans.
Given the votes are counted and the people put Democrats into the House, the Democratic party may have a more solid mandate to protect the current healthcare law.
“Health care is considered a defensive sector, along with other corners of the market like utilities and consumer staples. Investors will likely rotate into these groups heading into 2019, particularly amid the widespread volatility, said Michael Bapis, managing director with Vios Advisors at Rockefeller Capital Management,” according to CNBC.
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.
For more information on the market sectors, visit our sector ETFs category.