The healthcare sector is getting plenty of attention these days and with good reason. That’s prompting investors to investigate ETFs, including the Health Care Select Sector SPDR ETF (NYSEArca: XLV), but those evaluations need to include more than just cursory glances if it’s coronavirus-fighting exposure investors are after.
The largest healthcare ETF by assets, XLV seeks investment results that correspond generally to the Health Care Select Sector Index. The index includes companies from the following industries: pharmaceuticals; health care equipment & supplies; health care providers & services; biotechnology; life sciences tools & services; and health care technology.
Many investors are looking to healthcare ETFs for exposure to companies that could soon bring a coronavirus vaccine to market, but that thesis requires ample due diligence.
“According to GlobalData, there are at least 38 companies or universities with a recombinant adenovirus-derived vaccine asset for COVID-19 from preclinical to Phase II/III stages,” according to GlobalData. “On 3 June, the US Federal Government’s vaccine initiative, Operation Warp Speed, named AstraZeneca’s AZD122, as one of five finalists along with Johnson & Johnson’s candidate.”
Searching for Vaccine Victories
As individuals have been sheltered-in-place over the past several months due to the ongoing coronavirus pandemic, they have been compelled or even obligated to postpone elective medical procedures so that priority can be placed on helping patients Covid-19. This could be setting up a unique opportunity in healthcare according to one financial expert.
The result of this postponement is that when elective procedures begin to ramp up once again, health care companies can likely continue to increase premiums, as well as drive a greater focus toward healthcare in general.
Furthermore, the healthcare sector appears cheap relative to the broader market as this segment has underperformed the run in the S&P 500. Healthcare stocks were among the second weakest performers among the 11 major sectors on the benchmark index. Looking ahead, healthcare companies are projected to generate annual earnings of 9% and revenue growth of 14%, the highest of all sectors in the S&P 500, according to FactSet data.
“CanSino Biologics’ Ad5-nCoV and Johnson & Johnson’s vaccines’ disadvantage is they use a human adenovirus vector,” notes GlobalData. “This means a significant chunk of people may already have neutralizing antibodies against the vector, which decreases efficacy prospects. Phase I Ad5-nCoV data is underwhelming, which underscores this limitation. In contrast, AstraZeneca’s AZD1222 and Rome-based ReiThera’s vaccines use nonhuman vectors and so may not have this issue.”
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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.