A State Street Fund Excels in Rough Year for Healthcare Stocks
The healthcare sector has lagged the broader market, but this State Street fund outperformed its peers thanks to its market cap weighting.
Despite an early 2024 rally, healthcare shares continue to lag the broad market. Over the past 12 months, the S&P 500 Index climbed 22.1%; health stocks, a modest 13.5%. Enthusiasm about artificial intelligence (AI) stocks sapped investor attention from defensive sectors, including health.
Healthcare remains an attractive sector, although it doesn't move as one block. On the plus side, an ongoing post-COVID ramp-up in patients getting surgery and treatment is boosting health-facility stocks.
Weight-loss drugs and their potential to treat other ailments could lift earnings for key drug players for years. The sector even has an artificial intelligence angle, from accelerating drug research to precision medicine therapies. And though aging demographics is an old story, it remains a growth driver for the sector.
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Why we chose the Health Care Select Sector SPDR ETF
Last month in the Kiplinger ETF 20, our favorite cheap ETFs to buy, we replaced the Invesco S&P 500 Equal Weight Health Care ETF (RYH) with State Street Global Advisor's Health Care Select Sector SPDR Fund (XLV). Both funds hold the same 63 healthcare stocks, but the Invesco fund gives equal stakes to each firm and gained 5.9% over the past 12 months; the SPDR ETF weights each holding by market value and advanced 13.3%.
Size helped over the past year, and we think that trend will continue. Just 15 health stocks beat the S&P 500 over the past 12 months, and most rank among the largest by market cap. Sector heavyweight Eli Lilly (LLY) soared 78% over the past 12 months; biotech giants Regeneron Pharmaceuticals (REGN) and Amgen (AMGN) gained 45% and 46%, respectively.
By contrast, the rest of the sector was a drag. More than 20 stocks lost value over the past year, led by DexCom (DXCM), down 45%, which makes devices for people with diabetes.
Investors can expect the U.S. presidential election to inject some choppiness into health shares. Firms with strongholds in their businesses and heaps of cash on their balance sheets can best navigate that challenge, say BofA Securities analysts.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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