Written by Isabel Wang
Healthcare ETFs lost momentum early in the second quarter. With a rematch between Biden and Trump looming, strategists expect both to advance here.
Hello! MarketWatch reporter Isabel Wang brings you this week’s ETF wrap. This week’s issue focuses on healthcare ETFs. Healthcare ETFs took a breather in early April, pausing their strong first-quarter gains. Some healthcare stock strategists also share their views on why they think the lagging sector will break out this election year.
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U.S. healthcare stocks will maintain their upward momentum in the first trading week of the second quarter, as the relentless first-quarter gains for some of the most popular pharmaceutical stocks prove temporary. facing challenges.
The Healthcare Select Sector SPDR ETF XLV, which tracks a wide range of companies from pharmaceutical companies like Eli Lilly (LLY) and Pfizer (PFE) to insurance companies like UnitedHealth Group (UNH), is down 3.9% so far this week. are doing. , the fund’s worst weekly performance pace since Aug. 26, 2022, when it fell 4.2%, according to Dow Jones Market Data. The S&P 500’s healthcare sector XX:SP500.35 was the worst performing of the S&P 500’s 11 segments this week, falling nearly 4% through Thursday, while the overall index was down 2%, according to FactSet data. did.
See also: Why CMS’ Medicare Advantage rates are hurting Humana, UnitedHealth stock prices
Some health care companies, particularly those offering Medicare Advantage plans, are on track to wipe out their profits after a strong start this year. Payment rates released by the Centers for Medicare and Medicaid Services on Monday disappointed investors who expected further increases, followed by UnitedHealth, Humana Inc. (HUM) and CVS Health amid concerns of margin pressure.・The stock price of Corporation (CVS) fell. Year. Humana, which derives most of its revenue from Medicare, saw its stock fall to its lowest level in four years on Tuesday, according to FactSet data.
Market disappointment with the government’s decision not to revise the 2025 Medicare benefits plan and a lull in previously “massive” gains in weight-loss drug stocks led to a “widening decline” in the healthcare sector this week. This is one of the reasons behind this. said Damian Conover, director of healthcare equity strategy at Morningstar Research Services.
Investors flocked to pharmaceutical giants Eli Lilly and Novo Nordisk A/S (NVO) in early 2024 as demand for the company’s anti-obesity drugs exploded, sending the stock to stratospheric levels in the first quarter. I bet he would. Jill Carey Hall, equity strategist at BofA Global Research, said the healthcare sector saw inflows for six consecutive weeks in January and early February.
The S&P 500’s healthcare sector rose 8.4% in the first quarter of 2024, its best quarter since late 2022 and its best annual start since 2013, according to Dow Jones Market Data.
Additionally, political turmoil and policy uncertainty tend to weigh on health care stocks in presidential election years, as investors speculate on how health care policy will change under a new president. This traditionally defensive sector is becoming less attractive.
Healthcare stocks have historically been the market for investors anticipating an overhaul of the U.S. health care system, according to Andy Acker and Daniel Lyons, portfolio managers in Janus Henderson Investors’ healthcare and biotechnology team. Therefore, they tend to underperform, but they tend to recover when policies are implemented.
For example, the sector lagged the rest of the stock market in the months leading up to the passage of the Affordable Care Act in March 2010, but millions of Americans remained uninsured. It outperformed in the following years as investors took note of the implementation of the reform law that allowed them to enroll in the . The net benefit to the industry is greater than the cost (see graph below).
But that won’t be the case in 2024, as a rematch is set between incumbent Joe Biden and Republican challenger Donald Trump. Acker and Lyons said in a client note Tuesday that major new ideas in health care have not been included in candidates’ campaign talking points so far.
Mr. Biden passed the Inflation Control Act in 2022, allowing the government to negotiate prices on some Medicare drugs and capping out-of-pocket drug costs for seniors, but Mr. Trump did Although he has resumed his criticism of the Affordable Care Act, he has not yet come up with a proposal. An alternative to law.
Acker and Lyons say the lack of discussion of “massive change” or “big ideas” in presidential candidates’ campaigns means less uncertainty and volatility in health care stocks. He said that this may indicate that. The S&P 500’s healthcare sector is up 4.1% since the beginning of the year, while the broader S&P 500 SPX is up 7.9% over the same period, according to FactSet data.
Healthcare valuations look attractive
Morningstar’s Conover said the health care sector remains undervalued relative to the broader stock market, despite the relentless rally of some pharmaceutical stocks in the first quarter.
“The market is underestimating a lot of the innovations that are happening in both the pharmaceutical and medical fields. [medical] on the device side,” he told MarketWatch in a phone interview Thursday.
For example, in the biotechnology and drug manufacturing subsectors, the market has not fully factored in innovations in several therapeutic areas such as oncology, immunology, and rare diseases. Conover and his team also said Wednesday that the device and diagnostics industry has seen “compelling valuations” decline since the overly optimistic period at the peak of the COVID-19 pandemic. stated in the report.
As always, let’s take a look at the top and bottom performing ETFs over the past week through Wednesday, according to FactSet data.
Good stuff…
Top performers % Performance Amplify Junior Silver Miners ETF 13.7 Global X Silver Miners ETF 13.4 Sprott Uranium Miners ETF 11.3 Global X Uranium ETF 9.9 iShares Silver Trust 9.9 Source: FactSet data through Wednesday, April 3. Start date March 28. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
…and the bad points
Bottom performers %Performance ProShares Bitcoin Strategy ETF -7.6 ARK Genomic Revolution ETF -5.1 PIMCO 25+ Year Zero Coupon US Treasury Index ETF -4.9 Vanguard Extended Duration Treasury ETF -4.4 ARK Innovation ETF -4.4 Source: FactSet
New ETF
Strategas Asset Management on Thursday launched the actively managed Strategas Macro Momentum ETF SAMM. The fund is designed to be “more sensitive” to the current market cycle, looking for and capitalizing on market momentum impulses wherever they appear, the company said in a press release. stated in the release. Rayliant Global Advisors announced Thursday that it has partnered with Sumitomo Mitsui DS Asset Management. We are launching Rayliant SMDAM Japanese Stock ETF RAYJ. The fund aims to identify Japanese companies with “sustainable, high-quality growth” that will benefit investors seeking exposure to the world’s largest economy, the company said in a press release. ProShares on Tuesday launched the ProShares Ultra Bitcoin ETF BITU. It is the first ETF that aims to double the daily Bitcoin return, and ProShares Ultra Short Bitcoin ETF SBIT is the first ETF that aims to -2x the daily Bitcoin return. The company said. Both funds have an expense ratio of 0.95%, the company said on its website. Allianz Investment Management LLC on Monday announced the launch of the AllianzIM US Equity Buffer15 Uncapped ETF series, starting with the AllianzIM US Equity Buffer15 Uncapped Apr ETF ARLU. The new ETF series is designed to provide investors with a 15% downside buffer over a specified one-year performance period, the company said on Monday.
weekly ETF readings
Rising bond yields aren’t preventing tech stocks from outperforming, creating a buying opportunity, BlackRock says (MarketWatch) Fidelity’s new service fee poses an ‘existential’ threat to some ETFs (MarketWatch) Outperforming ETF managers name potential ’50 baggers’ Stock Market (MarketWatch) European stocks are too cheap to ignore (Financial Times) Billions of dollars in flood-active ETFs Targeting cheap emerging market stocks (Bloomberg) Quarterly top and bottom performing stock ETFs (MorningStar)
-Isabel Wang
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04/06/24 0530ET
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