Investors witnessed a tough run on the bourses last week, largely due to the likelihood of the Fed taking an aggressive stance on rate hikes. All the broad market indices ended the week in the red. The Dow Jones Industrial Average was down 0.3% for the week ending Apr 8. The other two broad market indices, the S&P 500 and the Nasdaq Composite, also lost 1.3% and 3.9%, respectively, over the same period. However, the healthcare space emerged a winner by rising more than 3% in the week.
Let’s take a look at the factors that can be working favorably for the healthcare space:
Resurging COVID-19 Cases in China
Resurging COVID-19 cases in China have led to a lockdown in Shanghai, the major financial hub of the country, in accordance with China’s zero-COVID policy. It appears as if China is seeing the worst outbreak conditions since the pandemic peaked in 2020. The city has witnessed more than 73,000 infections over the past month. The resurging cases and lockdown measures have reinstated the fears of a pandemic-induced global economic slowdown and renewed supply-chain disturbances.
War & Fed Led Market Uncertainties
The healthcare sector is a good defensive investment as several investors believe consumers will have to purchase healthcare products even during tough and uncertain times. Its non-cyclical nature provides defensive coverage to the portfolio amid market turbulence. Currently, the Russia-Ukraine war crisis and the Fed’s aggressive stance on rate hikes have caused a lot of uncertainty in the markets.
The end to the Russia-Ukraine conflict is not in sight. Rather, the conditions are likely to worsen. A CNN report has highlighted that Russian President Vladimir Putin has appointed a new general to take control and direct the war after the defeat in Kyiv (per U.S. and European officials). Russia is focusing its forces in eastern Ukraine for brutal and aggressive combat that could test and exhaust Ukraine's forces (per a CNN report).
Ukrainian President Volodymyr Zelensky has said that "we are ready" in his recent speech in response to the chances of a full-blown attack on Ukraine from Russia, according to a CNN report.
The recently released FOMC minutes of the March meeting highlighted the central bank’s plans to control the inflation levels by larger interest rate hikes. It also outlined the method and magnitude of reducing the balance sheet holding around $9 trillion in assets. Notably, the Federal Reserve officials have decided to shrink their balance sheet by approximately $95 billion a month. More precisely, the Fed is planning to reduce $60 billion in Treasurys and $35 billion in mortgage-backed securities, phasing in over three months, starting May (per a CNBC article).
Healthcare ETFs in Focus
Investors can take a look at the following healthcare ETFs:
The Health Care Select Sector SPDR Fund ( XLV Quick Quote XLV - Free Report) — up 3.5% in the last week
The Health Care Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index. XLV manages AUM of $38.89 billion and charges 10 basis points (bps) in fees. The Health Care Select Sector SPDR Fund sports a Zacks ETF Rack #1 (Strong Buy), with a Medium-risk outlook (read:
5 ETFs That Gained Investors Love Last Week). iShares U.S. Healthcare ETF ( IYH Quick Quote IYH - Free Report) — up 2.9%
The iShares U.S. Healthcare ETF seeks to track the investment results of an index composed of U.S. equities in the healthcare sector. With AUM of $3.11 billion, IYH charges 41 bps in fees. The iShares U.S. Healthcare ETF also sports a Zacks ETF Rack #1, with a Medium-risk outlook (read:
China's COVID-19 Lockdown Brings Back Focus on Healthcare ETFs). Vanguard Health Care ETF ( VHT Quick Quote VHT - Free Report) — up 2.6%
Vanguard Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. VHT has AUM of $18.02 billion and charges 10 bps in fees. Vanguard Health Care ETF also carries a Zacks ETF Rack #1, with a Medium-risk outlook (read:
Bet on These ETFs as Fed Might Turn Super Hawkish in 2022). Fidelity MSCI Health Care Index ETF ( FHLC Quick Quote FHLC - Free Report) — up 2.6%
Fidelity MSCI Health Care Index ETF seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Health Care Index. FHLC charges an expense ratio of 8 bps and has amassed $3.10 billion in AUM. Fidelity MSCI Health Care Index ETF carries a Zacks ETF Rack #3 (Hold), with a Medium-risk outlook.