Exchange Traded Funds (ETFs)

ETF Talk: Take Care of Your Portfolio with a Stable Sector

Health care is one of the strongest and most stable sectors in the market — at least, it has been traditionally. The reason why is because companies in the sector see consistent demand for their services. No matter what’s going on in the broader economy, people’s health and physical well-being will always need to be tended to. Because of this, health-care stocks are generally seen as “recession proof.”

Size-wise, health care is also huge — it made up 17.6% of gross domestic product (GDP) in the United States in 2023, with further growth forecasted for the next decade. The Centers for Medicaid and Medicare Services have projected a 5.6% average annual increase in national health spending by 2032.

Yet over the past year, stocks in the health care space have lagged. And while this market sector is an absolute behemoth, it is by no means immune to feeling ill. Yet sometimes, strong sectors experiencing a pullback can be good value plays. And with that in mind, there’s no better way to measure a sector than through its benchmark exchange-traded fund (ETF), the Health Care Select Sector SPDR Fund (XLV).

XLV is the largest passive fund in health care and is focused on U.S. stocks. It is also one of the oldest, launched in 1998 by State Street. The fund invests in the 64 largest health care stocks, allocated across the sector, to provide investment results that correspond to the performance of publicly traded equity securities of companies in the Health Care Select Sector Index.

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XLV captures a broad swath of the market through its 64 holdings, which are weighted by market value. The fund has net assets of around $32.25 billion with a low expense ratio of 0.09%. However, XLV is currently down 3.6% in the last month, 2.8% over the last three months and 5% year to date.

Top holdings include Eli Lilly and Company (LLY), 12.54%; Johnson & Johnson (JNJ), 8.55%; AbbVie Inc. (ABBV), 7.30%; UnitedHealth Group Incorporated (UNH), 4.74%; Abbott Laboratories (ABT), 4.73%; Merck & Co. Inc. (MRK), 4.22%; Thermo Fisher Scientific Inc. (TMO), 3.66%; Intuitive Surgical Inc. (ISRG), 3.56%; Amgen Inc. (AMGN), 3.36% and Boston Scientific Corporation (BSX), 3.23%.

Still, health care is traditionally a relatively stable sector and is often thought of as a good choice for uncertain times. A projected 20% of the American population will be aged 65 and up by 2030, which will only drive-up demand for pharmaceuticals and health care services, making health care a rapidly growing industry.

Be aware, however, that the health care sector has unique risk factors that require consideration. Investors should always do their due diligence before adding any stock or fund to their portfolio holdings.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.