The healthcare sector, the second-largest sector in the S&P 500, is the worst-performing group in the U.S. this year and healthcare providers and insurers are the primary drags on the broad healthcare sector.
Just look at the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF), which is lower by almost 7% this year. Healthcare ETFs have 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. However, some market observers believe lagging healthcare providers could be poised to bounce back.
“The stocks trade for an average of just 12 times projected 2019 earnings. And UnitedHealth, Anthem, and Humana already are generating double-digit growth in earnings per share,” reports Andrew Bary for Barron’s. “Patience is required because the insurers could be under a cloud until the 2020 presidential election—unless a Democratic front-runner emerges and distances himself or herself from the Medicare proposal.”
12 Largest Healthcare Sector ETFs by AUM
Click on any of the links in the table below will provide additional descriptive and quantitative information on Healthcare ETFs via ETFdb:
|Symbol||ETF Name||Expense Ratio||Total Assets ($MM)||YTD||Avg Volume||Previous Closing Price||1-Day Change|
|XLV||Health Care Select Sector SPDR Fund||0.13%||$18,140.72||1.32%||10,444,059||$87.33||1.58%|
|VHT||Vanguard Healthcare ETF||0.10%||$8,643.32||3.04%||287,422||$164.43||1.71%|
|IBB||iShares Nasdaq Biotechnology ETF||0.47%||$7,462.85||10.75%||2,471,067||$106.80||2.11%|
|XBI||SPDR S&P Biotech ETF||0.35%||$4,195.99||21.14%||4,770,891||$86.92||2.84%|
|IHI||iShares U.S. Medical Devices ETF||0.43%||$3,170.93||9.04%||292,084||$217.87||1.29%|
|FBT||First Trust Amex Biotechnology Index||0.56%||$2,850.90||12.78%||143,979||$140.07||2.64%|
|IYH||iShares U.S. Healthcare ETF||0.43%||$2,047.96||2.20%||119,810||$184.29||1.71%|
|IXJ||iShares Global Healthcare ETF||0.47%||$1,990.89||2.75%||174,454||$58.21||1.27%|
|FXH||First Trust Health Care AlphaDEX Fund||0.63%||$1,910.72||5.37%||165,387||$72.57||2.20%|
|FHLC||Fidelity MSCI Health Care Index ETF||0.08%||$1,491.72||3.00%||249,060||$42.41||1.63%|
|IHF||iShares U.S. Healthcare Providers ETF||0.43%||$720.43||-3.47%||113,281||$159.35||2.89%|
|RYH||Invesco S&P 500® Equal Weight Health Care ETF||0.40%||$698.04||6.79%||27,683||$189.35||1.76%|
* Assets and Average Volume as of 2019-04-23 20:15 UTC
Encouraging Signs for Healthcare Investing
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.
Even if Medicare For All gets on the table, it would take awhile for the proposal to come to life.
“If Democrats sweep the White House and both houses of Congress in 2020—any major overhaul of health care would probably not happen until 2023,” according to Barron’s.
Polls suggest that a Democratic sweep of the 2020 elections, meaning the party maintains its majority in the House while taking control of the Senate and the White House, are slim.
“In any case, it isn’t going to be easy for the Democrats to win everything in 2020. President Donald Trump is seen as having close to a 50% chance of being re-elected, and the odds of Democrats winning control of the Senate, which would be crucial for passage of Medicare for All, are less than one in three, according to Dan Clifton, Washington analyst at Strategas Research Partners,” according to Barron’s.
Relative Value ETFs to Consider
Does the potential rebound in health care speak to a broader narrative that cyclical sectors will overtake defensive sectors?
For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.
Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.
For more information on the healthcare segment, visit our healthcare category.
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.