Investors looking to play this year’s rebound in the healthcare sector with low-fee exchange traded funds have some compelling options. When it comes to low-fee healthcare ETFs, the Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) is the leader.
Like the other Fidelity sector ETFs, FHLC charges just 0.084% per year, or $8.40 on a $10,000 investment. At least for now, Fidelity’s sector ETFs, including FHLC, are less expensive than their Vanguard rivals.
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.
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.
“If you have a small budget and are looking for an inexpensive ETF that tracks the healthcare sector, the Fidelity MSCI Health Care Index ETF (NYSEARCA: FHLC) may be the best option at its current price level. The fund is trading just below $38 and has a year-to-date return of 14%. This is low-priced compared to the Vanguard Health Care ETF (NYSEARCA: VHT) trading near $148, the Health Care Select Sector SPDR ETF (NYSEARCA: XLV) trading near $78, and the iShares U.S. Healthcare ETF (NYSEARCA: IYH) trading near $165 per share,” according to a Seeking Alpha analysis of the ETF.
FHLC holds 344 stocks, a combined 53% of which are pharmaceuticals and biotechnology names. Healthcare equipment makers represent 20.5% of FHLC’s roster.
The pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose.
Market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector. The White House is also looking to help the Food and Drug Administration (FDA) expedite new drug approvals, which could serve as a major catalyst for the biotechnology space.
“If the healthcare industry can remain strong and see favorable political policy, strongholds like Johnson & Johnson, AbbVie (NYSE: ABBV), Regeneron (NASDAQ: REGN), Amgen, and more will lift the ETF to new highs as they continue to develop new products and treatments for consumers. This ETF should attract more popularity in the future, which could drive shares higher and increase its market cap,” according to Seeking Alpha.
For more information on the healthcare sector, visit our healthcare category.