The Health Care Select Sector SPDR ETF (XLV ) was up approximately 6% year-to-date as of January 29. While it is still early days, this performance is already twice as robust as the sector ETF’s performance for all of 2024. Health care was out of shape in 2024, lagging the broader market by 2,000 basis points in 2024.
So we have to ask: Have health care stocks recovered enough to outperform the S&P 500 index in 2025? We turn to Michael Arone, State Street Global Advisors Chief Equity Strategy, for a sector check up. Even though we don’t believe he is a medical doctor.
The Prescription for Health Care
Arone recently published three market surprises for 2025. One of them was focused on the health care sector. Arone noted that health care recently traded at more than a 20% price-to-earnings discount relative to the S&P 500. But, over the next three to five years the sector is expected to grow its earnings-per-share faster than the market benchmark.
The report pointed to structural tailwinds including aging demographics around the world. Furthermore Arone noted how the use of artificial intelligence will aid in the development of breakthrough medicines to fight diseases. History is also on Arone’s side. The health care sector has outperformed the S&P 500 in the first year of any presidency since Reagan.
Diagnosing Where Health Care Fits Into a Portfolio?
The health care sector represents 10% of assets for the SPDR S&P 500 ETF (SPY ). Only information technology (31%), financials (14%), and consumer discretionary (11%) are larger. XLV is the biggest of the health care ETFs with $39 billion in assets. Pharmaceuticals (30%), health care equipment & supplies (23%) and health care providers & services (21%) stocks make up most of the assets. Biotechnology is much smaller at 15%.
For those looking to compare broad sector ETFs, the Vanguard Health Care ETF (VHT ) and the iShares US Health Care ETF (IYH ) are two others VHT and IYH have $17 billion and $3 billion in assets, respectively. Thus far in 2025, VHT was modestly outperforming XLV and IYH. VHT incorporates small- and mid-cap stocks not in the S&P 500.
Putting More Specialized ETFs Under Microscope
Despite biotech’s relative size in XLV and the broader S&P 500, biotech industry ETFs are bigger than many others. The iShares Biotechnology ETF (IBB ) and the SPDR S&P Biotech ETF (XBI ) each have more than $6 billion in assets. IBB has been the stronger performer thus far in 2025.
This iShares ETF is heavily weighted to large-cap companies like Amgen and Gilead Sciences. In contrast, the SPDR ETF is equally weighted with meaningful exposure to companies like Insmed and Vaxcyte. There are also ETFs from iShares, State Street Global Advisors and peers providing targeted exposure to health care providers, medical devices, and pharmaceuticals
Meanwhile, VettaFi recently wrote about the strong performance in 2025 from thematic health care ETFs. The ARK Genomic Revolution ETF (ARKG ) and the ROBO Global Healthcare Technology and Innovation ETF (HTEC ) rose 11.4% and 7.1%, respectively, These ETFs take a more forward-looking approach to identify disruptive health care companies.
VettaFi expects the market to broaden out in 2025 and not just be dominated by a handful of mega-cap growth stocks. We shall see if Arone is correct and health care ETFs warrant a strong prognosis. But for those with a rosy outlook, there are many choices to consider.
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_ VettaFi LLC (“VettaFi”) is the index provider for ROBO and HTEC for which it receives an index licensing fee. However, ROBO and HTEC are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ROBO or HTEC._
